REG - Foxtons Group PLC - Final Results
05/03/2024 07:00
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RNS Number : 5466F Foxtons Group PLC 05 March 2024
Foxtons Group plc
("Foxtons" or the "Group")
FULL YEAR RESULTS FOR THE YEAR ENDED 31 DECEMBER 2023
5 March 2024
Operational turnaround and strengthened operating platform drove market
outperformance and adjusted operating profit growth. On track to deliver
medium-term growth target.
Foxtons Group plc (LSE:FOXT), London's leading estate agency, delivered a year
of significant progress in 2023.
Fee earner headcount investment, upgraded data and technology capabilities, a
re-energised culture, and a reinvigorated brand enabled market outperformance
in the year(1), and underpins the delivery of our medium-term target of £25m
to £30m adjusted operating profit.
2023 2022 Change
Continuing operations(2):
Revenue £147.1m £140.3m +5%
Adjusted EBITDA(3) £17.5m £16.5m +6%
Adjusted operating profit(4) £14.3m £13.9m +2%
Profit before tax(5) £7.9m £11.9m (34%)
Adjusted earnings per share (basic)(6) 3.0p 3.1p (3%)
Earnings per share (basic) 1.8p 3.0p (40%)
Total Group(7):
Net free cash (outflow)/inflow(8) (£0.1m) £7.7m n/a
Total dividend per share 0.9p 0.9p -
2023 financial highlights:
· Revenue up 5% to £147.1m and adjusted operating profit up 2% to
£14.3m. Growth delivered despite a significantly weaker sales market and
headcount investment required to rebuild core capabilities.
· Lettings revenue, representing c.70% of total revenue, up 16% to
£101.2m as organic and acquisitive growth strategies are delivered. Two
acquisitions completed in 2023, adding over 2,800 tenancies.
· Sales revenue down 14% to £37.2m as challenging market conditions
were partially mitigated by market share driven outperformance of the wider
London market, which was down over 24% on value(9).
· Financial Services revenue down 14% to £8.8m as weaker new purchase
mortgage volumes were partially offset by non-cyclical and recurring refinance
volumes.
· Adjusted operating profit up 2% to £14.3m and adjusted EBITDA up 6%
to £17.5m. Lettings adjusted operating profit growth offset an adjusted
operating loss in Sales which reflected depressed volumes and fee earner
investment to drive future growth.
· Profit before tax down 34% to £7.9m after charging £4.5m of adjusted
items primarily relating to the integration of Ludlow Thompson and branch
network consolidation, unlocking £3m of annualised synergies from 2024.
Adjusted profit before tax up 3% at £12.4m (2022: £12.0m).
· Net free cash outflow of £0.1m reflecting £13.9m of Lettings
acquisition spend, £10.8m of working capital investment as shorter landlord
billing terms are introduced to improve competitiveness and portfolio
retention, £2.7m of dividends paid, and £1.1m of share buybacks.
Operational highlights:
· Operational upgrades identified in March 2023 delivered at pace and
ahead of expectations: rebuilding fee earner levels, rebuilding core
technology and data capabilities, and reenergising Foxtons' culture.
· Strengthened the Foxtons Operating Platform - the leading platform in
estate agency underpinned by unmatched technology and data capabilities.
Provides the foundations for long-term growth, both organically and through
consolidation of the highly fragmented sector.
· The Foxtons Operating Platform supported significant year-on-year
market share growth(1) across all three businesses in 2023. Lettings: +16%,
Sales: +21% and Financial Services: +11%.
· Foxtons reclaimed the number 1 estate agency position in London, and
is now the largest Lettings estate agency brand in the UK and was the fastest
growing large UK estate agency brand in 2023.(10)
· Launched new "Get it done with London's number one" campaign to drive
customer consideration.
Platform is powered by five areas of competitive advantage which were
significantly strengthened in 2023:
· Technology platform: an end-to-end, fully integrated, and internally
developed CRM and workflow system powering all aspects of the Foxtons
business. In 2023, Foxtons developed the UK's first fully digital end-to-end
lettings platform, alongside reviewing and optimising processes to drive
productivity.
· Data platform: developed and launched in 2023, the platform combines
leading infrastructure, databases built up over 20 years, real-time market
data, and advanced data science and analytics. The platform powers marketing,
stock acquisition, matching buyers and renters to properties and internal
performance reporting.
· Brand: the leading brand in London estate agency with the highest levels
of brand recognition in a highly fragmented market. In 2023, the Group
significantly drove increased levels of customer consideration by overhauling
its marketing approach and introducing new customer marketing campaigns.
· Hub and spoke: Foxtons operates a hub and spoke model with a network
of branches supported by specialised sales and operational support teams, to
drive productivity and service levels. In 2023, Foxtons streamlined its branch
footprint by 5% and began investing in a new out-of-London property management
centre of excellence to drive service levels and unlock synergies in Foxtons'
operating cost base.
· People, culture and training: a focus on training and retaining the
best estate agents alongside a unique high performance culture promoting
delivery of customer results with the highest levels of service. In 2023, the
Group rebuilt its culture including delivering a ten-fold increase in
in-person training and improving fee earner attrition rates by 11% and tenure
by 9%.
2024 trading and outlook
· Trading in January and February in line with expectations.
· Lettings is expected to remain resilient with the business continuing to
display strong recurring and non-cyclical characteristics. Lettings market
supply and demand dynamics have normalised, with increased levels of available
rental stock and fewer tenants registering for each available rental property
compared to 2023. As expected, year-on-year rental growth has moderated with
rental prices remaining at elevated levels. Through our leading market
position, and by leveraging the Foxtons Operating Platform, the improved
supply of available rental properties provides a good opportunity to deliver
organic market share growth.
· In Sales, continued market outperformance, alongside some recovery in
buyer demand levels as mortgage rates have begun to reduce, has resulted in a
31% year-on-year increase in the value of the under offer pipeline at the end
of February. The growth in the value of the under-offer pipeline is expected
to deliver good year-on-year revenue growth in the first half of the year,
with further growth expected in the second half if mortgage rates continue to
stabilise and pent-up demand is released.
· In Financial Services, improved new buyer demand, alongside good
levels of non-cyclical refinance activity, has supported 16% growth in the
value of the Financial Services pipeline.
· By leveraging the operational capabilities of the Foxtons Operating
Platform, alongside increased levels of contribution as fee earners hired in
2023 mature, the Group is on track to deliver another year of growth in 2024
and to deliver against our £25m to £30m adjusted operating profit target
over the medium-term.
Guy Gittins, Chief Executive Officer, said:
"2023 was a year in which Foxtons has been fundamentally transformed. We have
achieved a lot in a short space of time by making improvements across the
business and Foxtons is now in much better shape than the company I inherited
18 months ago.
"We have restored Foxtons' competitive advantages by investing in core
capabilities, growing fee earners and reinvigorating our culture and this has
been achieved ahead of schedule. As a result, Foxtons was the UK's fastest
growing large lettings and sales agency brand in the UK in 2023 and reclaimed
its position as London's leading estate agency.
"Most importantly, we have rebuilt and strengthened the Foxtons Operating
Platform. The platform is a unique, industry-leading and proprietary asset
which will underpin our future growth and, due to its scalability, will
provide Foxtons with the capability to expand and consolidate across our
industry.
"Our strategy to deliver growth through sales market cycles by delivering
Lettings growth is working, delivering resilient earnings for the year despite
a weak sales market and the investment we made in fee earners. We are on track
against our medium-term target of delivering £25m to £30m of adjusted
operating profit, through organic and acquisitive growth and supported by
improving market conditions."
For further information, please contact:
Foxtons Group plc investor@foxtonsgroup.co.uk (mailto:investor@foxtonsgroup.co.uk)
Chris Hough, Chief Financial Officer +44 20 7893 6261
Muhammad Patel, Investor Relations
TB Cardew Foxtons@tbcardew.com (mailto:Foxtons@tbcardew.com)
Will Baldwin-Charles / Olivia Rosser +44 7834 524833 / +44 7552 864 250
TB Cardew
Foxtons@tbcardew.com (mailto:Foxtons@tbcardew.com)
Will Baldwin-Charles / Olivia Rosser
+44 7834 524833 / +44 7552 864 250
( )
The Company will present a live webcast at 9:00am (GMT) for analysts and
investors. To access you will be required to pre‐register using the
following link: https://secure.emincote.com/client/foxtons/foxtons006
(https://secure.emincote.com/client/foxtons/foxtons006)
The presentation will also be broadcast via conference call. To access you
will be required to pre‐register using the following link:
https://secure.emincote.com/client/foxtons/foxtons006/vip_connect
(https://secure.emincote.com/client/foxtons/foxtons006/vip_connect)
(1) Outperformance on a market share basis. Calculated as Foxtons' share of
Lettings instruction volumes in 2022 vs 2023, Sales exchange volumes in 2022
vs 2023 and Financial Services share of total mortgage underwriting for the
period January - December 2022 vs January - November 2023. Source: TwentyCi,
UK Finance
(2) Both 2022 and 2023 results are presented on a continuing operations basis
and exclude the results of the D&G Sales business (disposed of on 11
February 2022).
(3) Adjusted EBITDA represents the profit before tax before finance income,
non-IFRS 16 finance costs, other gains, depreciation of property, plant and
equipment (but after IFRS 16 depreciation), amortisation, share-based payment
charges and adjusted items. Adjusted EBITDA excludes share-based payment
charges (2023: £1.0 million; 2022: £0.9 million) in order to be consistent
with the definition of adjusted EBITDA used to calculate the Group's revolving
credit facility covenants.
( 4) Adjusted operating profit is defined as profit before tax for the period
before finance income, finance cost, other gains/(losses) and adjusted items.
Refer to Note 2 of the financial statements for a reconciliation of the
measure to statutory measures.
(5) Proft before tax includes £4.5 million of adjusted item charges primarily
reflecting one-off charges relating to the integration of the Ludlow Thompson
acquisition. On an adjusted basis, adjusted profit before tax is up 3% at
£12.4 million (2022: £12.0 million).
(6) Adjusted earnings per share is defined as earnings per share excluding the
impact of adjusted items. Refer to Note 6 of the financial statements for a
reconciliation between earnings per share and adjusted earnings per share.
(7) Total Group includes results from both continuing operations and
discontinued operations.
(8) 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), divestments and purchases of investments.
(9) Total market value reflects 22% decrease in exchange volumes and 2.4%
reduction in average price. Source: TwentyCi, Nationwide House Price Index.
(10) Market share growth of new lettings and sales instructions amongst the
UK's 10 largest estate agency brands (with reference to instruction market
share) in 2023 vs
2022. Source: TwentyCi
About
Founded in 1981, Foxtons is London's leading estate agency and largest
lettings agency brand, with a portfolio of over 28,000 tenancies. The Group
operates from a network of interconnected, single-brand branches and offers a
range of residential property services across three business segments:
Lettings, Sales and Financial Services.
The Group's strategy is to accelerate growth, and deliver £25m to £30m
adjusted operating profit in the medium-term, by focusing on non-cyclical and
recurring revenues from Lettings and Financial Services refinance activities,
supplemented by market share growth in Sales.
Growth is underpinned by the Foxtons Operating Platform, the most
comprehensive and advanced platform in UK estate agency. The platform was
strengthened through 2023 and leverages the Group's competitive advantages in
data and technology; the Foxtons brand, its hub and spoke operating model and,
its people, culture and training.
By fully leveraging the platform, the Group will drive significant growth;
both organically through market share gains and by strengthening Foxtons'
position as an effective sector consolidator, to deliver significant profit
growth and value for shareholders. The Group's strategic priorities are:
· Lettings organic growth: Focus on winning new property instructions,
with speed to market and high quality landlord service to drive revenue
growth.
· Lettings acquisitive growth: Acquire, integrate and service high
quality lettings portfolios.
· Sales market share growth: Reinvigorating the Foxtons brand and
increasing sales headcount to grow addressable market share.
· Financial Services revenue growth: Increasing adviser headcount, with
improving productivity and cross sell to drive revenue growth.
To find out more, please visit www.foxtonsgroup.co.uk
(http://www.foxtonsgroup.co.uk)
PERFORMANCE AT A
GLANCE
Year ended 31 December 2023 2022 Change
Income statement (from continuing operations(1))
Revenue £147.1m £140.3m +5%
Adjusted EBITDA(2) £17.5m £16.5m +6%
Adjusted operating profit(2) £14.3m £13.9m +2%
Adjusted operating profit margin(2) 9.7% 9.9% (20 bps)
Profit before tax £7.9m £11.9m (34%)
Earnings per share (from continuing operations(1))
Basic earnings per share 1.8p 3.0p (40%)
Adjusted basic earnings per share(2) 3.0p 3.1p (3%)
Dividends
Interim dividend per share 0.2p 0.2p -
Final dividend per share 0.7p 0.7p -
Net (debt)/cash and net free cash flow
Net (debt)/cash(2) (£6.8m) £12.0m (£18.8m)
Net cash from operating activities(3) £15.7m £23.9m (35%)
Net free cash (outflow)/inflow(2,3) (£0.1m) £7.7m n/a
Segmental metrics (from continuing operations(1))
Lettings revenue £101.2m £86.9m +16%
Lettings volumes 19,334 20,640 (6%)
Average revenue per lettings transaction £5,234 £4,210 +24%
Sales revenue £37.2m £43.2m (14%)
Sales volumes 2,871 3,215 (11%)
Average revenue per sales transaction £12,942 £13,431 (4%)
Financial services revenue £8.8m £10.2m (14%)
Financial services volumes 5,033 5,003 +1%
Average revenue per Financial Services transaction £1,745 £2,043 (15%)
( )
(1) Both 2022 and 2023 results are presented on a continuing operations basis
and exclude the results of the D&G Sales business (disposed of on 11
February 2022).
(2) These measures are APMs used by the Group and are defined, and purpose
explained within Note 16.
(3) Net cash from operating activities and net free cash flow includes
continuing and discontinued operations.
CHAIRMAN'S STATEMENT
Following his appointment in September 2022, 2023 was Guy Gittins' first full
year as CEO. Under his leadership it was a transformational year for the
business, putting Foxtons firmly on the front foot with fee earner headcount
rebuilt across the business, the culture re-energised, the data and technology
capabilities upgraded, and the brand reinvigorated.
Significant changes to the culture within the Company have improved employee
retention and motivation leading to better customer service and enabling us to
reclaim our leading position in our sector of the market.
Helped by a series of acquisitions since 2020, around 70% of the Group's
revenues are now derived from the Lettings business, creating a more recurring
and resilient earnings stream, and lessening the impact of the volatility of
the sales market. In addition, much effort has been made to successfully
rebuild the market share of our Sales business, which should lead to better
results going forward.
Building new data capabilities onto Foxtons' technology platform has been a
major focus in order to deliver a competitive advantage and unlock the latent
value in Foxtons' unique database, which has been built up over the last 20
years. The platform drives fee earner productivity, enables organic market
share growth, and due to its scalability facilitates the efficient integration
of lettings acquisitions.
Market and financials
The sales market was challenging in 2023 as a consequence of high interest
rates and their effect on the mortgage market. As a result, sales transaction
volumes in London were down 22% compared with 2022. In contrast, the lettings
market was strong due a high level of tenant demand and shortage of stock
leading to a sustained rise in rental levels in the year.
Revenue was up 5% to £147.1 million, with Lettings delivering £101.2
million, and surpassing the £100 million milestone for the first time.
Adjusted operating profit increased marginally from £13.9 million to £14.3
million. The revenue increase was greater than the profit increase largely due
to the costs of rebuilding our capabilities across the organisation.
As a result of using debt to fund our latest lettings acquisition, we ended
the year with net debt of £6.8 million (2022: £12.0 million net cash). In
addition to £13.9 million spent on acquisitions, changes in our billing
practices to improve our competitiveness in the lettings market resulted in a
negative movement in our working capital of £10.8 million as explained in the
Financial Review on page 19.
In June the Group's revolving credit facility was refinanced and the new
facility provides £20 million of committed borrowing capacity until June
2026, with an option to extend for two years thereafter. The terms have
remained materially the same as the previous facility.
Dividends and share buybacks
With more recurrent and resilient earnings, as a result of the investments in
lettings businesses, the Board has decided to adopt a progressive dividend
policy with respect to the 2024 financial year. The aim being to offer a
reliable and growing income stream to investors whilst still being able to
maintain our current capital allocation policy.
For 2023, the Board is proposing a final dividend of 0.7p per share under the
existing policy, the same as the final dividend for 2022. Under the new policy
we would expect total dividends paid in 2024 and 2025 to at least maintain the
level paid in 2022 and 2023.
£1.1 million of share buybacks were completed during the year at an average
price of 38p per share. The Board will continue to keep share buybacks under
review in the context of other potential uses of capital.
Board
Annette Andrews and Jack Callaway joined the Board in February 2023. Annette
chairs the Remuneration Committee and brings considerable knowledge of people
management and related remuneration skills to her role. Jack is a very
experienced investment banker with M&A expertise. Their respective skills
are invaluable to the Board and the Company.
Medium-term outlook
I am confident that there is significant further progress that Foxtons can and
will make, due to the management leadership, the scalable technology platform,
the customer database, and the prominence of the brand. We will continue to
drive organic growth in Lettings, supplemented by further acquisitions. And,
as the market share of Sales increases, so will its contribution to the
Group's results with Financial Services also a beneficiary from the greater
number of sales transactions. We firmly believe that we are on track to
deliver £25 million to £30 million of adjusted operating profit over the
medium-term.
Nigel Rich CBE
Chairman
4 March 2024
Chief Executive's review
2023 was a year of significant turnaround and growth for Foxtons, as
operational upgrades and investment in the Foxtons Operating Platform drove
good operational and financial progress despite a significantly weaker sales
market backdrop, highlighting the Group's increased resilience.
Upon joining the business 18 months ago, I initiated an operational review
which, as reported in March 2023, revealed just how much of the Foxtons'
competitive edge had been eroded. Operational upgrades have been delivered at
pace and ahead of the planned timeframes, demonstrating the talent and
commitment within the business. Consequently, 2023 was a year of investing in
core capabilities, building fee earners to an appropriate level and reigniting
the culture to attract, develop and retain the best talent.
A lot has been achieved in a short space of time, as the business has embraced
change and developed a sense of urgency in execution. We delivered record
Lettings revenue of over £100 million and significantly grew market share
across all our businesses; Lettings market share of instructions grew 16%,
Sales market share of exchanges grew 21% and Financial Services share of
mortgage underwriting grew 11%. Foxtons is now the largest lettings estate
agency brand in the UK and was the fastest growing large UK lettings and sales
estate agency brand in 2023.
Key aspects of the business have now been transformed, and most significantly,
we have strengthened the Foxtons Operating Platform, the most comprehensive
and advanced platform in UK estate agency underpinned by leading technology
and data capabilities. The platform is a key driver of our future growth and
strengthens Foxtons' position as an effective sector consolidator.
At the start of 2023, I set out my vision to once again make Foxtons London's
go-to agent and deliver £25 million to £30 million of adjusted operating
profit in the medium-term. Our progress is on track, and with improving market
conditions, I am confident we will deliver our medium-term profit target
through organic and acquisitive growth.
2023 market conditions
The Lettings market in London remains attractive, as high levels of demand
underpin rents and create a valuable non-cyclical and recurring market
dynamic. Rental prices rose in the first half of 2023, as high levels of
tenant demand outstripped supply, driving price growth. This dynamic eased in
the second half of 2023, as stock levels increased and tenant demand
normalised, with rental price growth moderating, albeit at elevated levels.
In comparison, the sales market remained weak through 2023, as the impact of
the September 2022 mini-budget, higher interest rates and a weaker
macroeconomic backdrop weighed on buyer demand and affordability levels. The
sales market in London was over 24% lower in value versus the prior year and
reflected a 22% reduction in transaction volumes and a 2.4% reduction in
average prices. In fact, transaction volumes were at some of the lowest levels
since 2008 and 2020, years impacted by the Global Financial Crisis and the
Covid-19 market shutdown respectively. More positively, with mortgage rates
starting to dip below 4% towards the end of the year there was an increase in
buyer demand, reflecting high levels of pent-up demand in the market.
Financial results
The business delivered a modest increase in adjusted operating profit, despite
a much weaker sales market and investments in rebuilding core capabilities,
driven by the enhanced size of our Lettings business which provides more
recurring and non-cyclical earnings.
Revenue was up 5% to £147.1 million and adjusted operating profit was up 2%
to £14.3 million. Profit before tax was down 34% to £7.9 million, but up 3%
to £12.4 million on an adjusted basis which excludes one-off restructuring
charges. The cost savings associated with the restructuring charges will
provide annualised cost savings of c.£3 million as the Group delivers
acquisition synergies and consolidates certain branches within the Foxtons
network. Net debt at the end of the period was £6.8 million reflecting our
decision to utilise debt to accelerate our acquisition strategy.
Lettings revenue was up 16% to £101.2 million, and at an improved margin of
26%, delivered £25.8 million of adjusted operating profit. Operational
improvements, including increased cross-sell of higher value property
management services and a focus on securing longer tenancies, alongside higher
rental prices, increased organic revenue by 7%. £3.9 million of incremental
acquisition revenue, alongside the delivery of cost synergies, and £4.1
million of additional interest on client monies also contributed to revenue
and earnings growth.
Significant market share gains were delivered in Sales, outperforming a
challenging market which was down over 24% in value. Against this backdrop,
Sales revenue was down c.14% versus 2022. Sales made an adjusted operating
loss of £10 million due to lower revenues and investment in fee earner
headcount to rebuild capacity and bench strength. With the right number of fee
earners now in the business, and significantly better fee earner retention,
the Sales business has a clear path to profitability under improving market
conditions and increasing levels of market share.
Financial Services revenue was 14% lower at £8.8 million as non-cyclical and
recurring refinance mortgage volumes and market share gains partially
mitigated lower purchase mortgage volumes.
Delivering our strategic priorities
Our strategy is to deliver long-term growth by growing non-cyclical and
recurring Lettings revenues, both organically and through acquisition,
alongside returning the Sales business to profitability. By doing so, our
target is to deliver £25 million to £30 million of adjusted operating profit
in the medium-term and create significant shareholder value.
Whilst significant progress has already been made, and the Group is on track
with delivery of its medium-term profit target, fundamentally 2023 was a year
of rebuilding for the business. I am confident further growth lies ahead, as
we fully leverage the capabilities of the unique Foxtons Operating Platform.
At the end of 2023, the Group has delivered good progress against its
strategic priorities:
1. Lettings organic growth: 7% organic revenue growth in 2023 (excluding
growth in interest on client monies), with total Lettings revenue passing the
£100 million revenue milestone for the first time in Foxtons' history.
Medium-term target: 3% - 5% revenue CAGR.
2. Lettings acquisitions: Completed the acquisitions of Atkinson McLeod and
Ludlow Thompson in 2023, adding over 2,800 new tenancies to the Group's
portfolio. Prior acquisitions continue to perform well, delivering 25% average
annual return since acquisition. With over 3,600 agents in London, the
lettings industry is highly fragmented and so offers significant consolidation
opportunities.
Medium-term target: 20%+ return on capital.
3. Sales: Grew sales exchange market share by 21% to 4.1% (2022: 3.4%).
Achieving exchange market share of 4.5%, combined with market volumes
recovering to more normalised levels, will support the Sales business' return
to profitability.
Medium-term target: 4.5%+ exchange market share in the medium-term.
4. Financial Services: 14% revenue decrease resulting from a significantly
weaker mortgage market. Operational upgrades delivered in the year include
investing in adviser capacity and increasing the cross-sell of Financial
Services products across the Group. Financial Services grew its market share
of UK underwriting by 11% in the year.
Medium-term target: 7% - 10% revenue CAGR.
The Foxtons Operating Platform
Through 2023 we have strengthened the Foxtons Operating Platform, a unique and
industry-leading platform that underpins our medium-term £25 million to £30
million adjusted operating profit target. This represents a powerful and
unique asset to facilitate expansion and industry consolidation in the
longer-term.
The platform drives high levels of lead generation, deal excellence and
lifetime customer value, whilst also creating high levels of scalability, all
key to delivering growth and ensuring we reach our adjusted operating profit
target in the shortest space of time.
The Foxtons Operating Platform comprises five key elements:
1. "BOS" (Business Operating System) technology platform
The Foxtons Business Operating System, known as "BOS", is an end-to-end, fully
integrated and internally-developed CRM and workflow system powering all
aspects of the Foxtons business. BOS is the most advanced technology platform
in UK estate agency and is a key driver of innovation, productivity, workforce
collaboration and Foxtons' unique competitive culture.
As BOS remains fully internally managed and developed, Foxtons is able is able
to deliver process upgrades and new technology products at speed, in contrast
to the majority of estate agents which utilise third party systems with
limited customisation or new product innovation. This is a significant
competitive advantage to the Group and a key route to driving innovation in
the sector.
In 2023, the Group continued to strengthen the BOS platform, including
developing the UK's first fully digital end-to-end lettings system allowing
tenants to complete a Lettings transaction completely digitally, which has
been a driver in supporting market share gains in the Lettings business.
2. Foxtons Data Platform
In 2023, we developed and rolled out the Foxtons Data Platform. The platform
is industry leading, combining best in class data infrastructure, rich
historical databases, real-time market data, and advanced data science
capabilities including AI and machine learning plug-ins.
Foxtons databases have been built up over 20 years, with over 1.6 billion data
points including customer and property details, transactional data, and
in-depth customer behaviour insights. Paired with advanced data science
capabilities, the platform is future-fit and provides a long-term competitive
advantage. The platform is already driving increased market share of property
instructions and deals through data-driven marketing and algorithmic
lead-scoring.
In addition, a comprehensive internal reporting suite has been created and
implemented across the business, improving visibility of all aspects of estate
agency performance and enabling data led decision making. This is driving a
cultural shift across the business and is unlocking operational upgrades to
drive outperformance and growth.
3. Hub and spoke operating model
Foxtons operates a unique hub and spoke model with a network of
inter-connected, single-brand branches supported by specialised sales and
operational support teams. This role specialisation drives high levels of
branch productivity with fee earners able to focus on results for customers,
whilst centralised support functions benefit from economies of scale,
optimised processes and best-in-class technology.
Throughout 2023 we forensically reviewed all processes across the business
and, supported by our new reporting suites, have initiated an optimisation
programme to ensure we are always delivering the best results for customers
with the highest levels of service.
As an example, to successfully deliver against our Lettings organic growth
strategy, and retain landlords and drive brand loyalty with tenants, we must
deliver consistently high levels of property management service excellence.
Headcount, training, technology, and core processes have been enhanced in 2023
to support continuous improvement in this important area. New real-time
customer experience feedback systems have been implemented alongside new
remuneration packages that are better aligned to customer service delivery.
Today over 40% of Foxtons' Lettings portfolio is actively managed, against a
long-term average rate of 33%.
In November 2023, as part of the Ludlow Thompson acquisition, we acquired an
out-of-London lettings property management hub. This hub plays an important
role in our Lettings growth strategy, and will be developed into a property
management centre of excellence focused on customer service delivery, whilst
benefitting from reduced operating costs and a good supply of quality talent.
By expanding the out-of-London hub, and fully utilising existing branch real
estate, we will be able to downsize the Group's Chiswick Park headquarters and
generate meaningful cost savings. To this end, we are engaging with our
landlord to explore early surrender options for the lease which ends in 2027.
4. Brand
The Foxtons brand occupies a unique position in London, with the highest
levels of brand recognition in a highly fragmented industry. However, this
asset had been neglected over the past few years leading to a lack of brand
visibility. This was coupled with an unclear customer proposition as Foxtons
increasingly struggled to live up to its brand ethos: delivering best in class
results for customers with the highest levels of service.
Through 2023, new data-driven marketing initiatives have been launched that
make clear what Foxtons stands for and why landlords and sellers should choose
us, driving growth in brand consideration. Our website Foxtons.co.uk is the
most visited estate agent website in the UK, and by a factor of 5 compared to
the next leading competitor brand.
A focus on providing the highest levels of customer service once again
permeates everything we do at Foxtons. And this, combined with operational
excellence through leveraging the Foxtons Operating Platform, has allowed us
to hold our premium fee position whilst growing at the fastest rate in the UK
and taking a leadership position in our markets.
5. People, culture and training
Fundamentally, estate agency remains at heart a people business. And a large
part of Foxtons outperformance is driven by focus on training and retaining
the best estate agents alongside a unique high-performance culture. This area
has been neglected over the past few years with the knock-on impact on
performance.
Through 2023 we have invested in fee earner headcount to reflect the market
opportunity, alongside rewarding success, focusing on training and career
progression to support retention, and aligning incentives with our strategic
priorities. In addition, a new employee value proposition has been implemented
and, alongside an overhauled recruitment approach, is significantly improving
the attractiveness of Foxtons to high-calibre prospective employees. Together,
these have turbocharged a high-performance sales culture, improving Lettings
and Sales fee earner retention rates by 11% and average tenure by 9% compared
to 2022, and creating one of the most productive and engaged workforces in the
industry.
2024 trading and outlook
Lettings is expected to remain resilient with the business continuing to
display strong recurring and non-cyclical characteristics. Lettings market
supply and demand dynamics have normalised, with increased levels of available
rental stock and fewer tenants registering for each available rental property
compared to 2023. As expected, year-on-year rental growth has moderated with
rental prices remaining at elevated levels. Through our leading market
position, and by leveraging the Foxtons Operating Platform, the improved
supply of available rental properties provides a good opportunity to deliver
organic market share growth.
In Sales, continued market outperformance, alongside some recovery in buyer
demand levels as mortgage rates have begun to reduce, has resulted in a 31%
year-on-year increase in the value of the under offer pipeline at the end of
February. The growth in the value of the under-offer pipeline is expected to
deliver good year-on-year revenue growth in the first half of the year, with
further growth expected in the second half if mortgage rates continue to
stabilise and pent-up demand is released.
Financial Services has also benefited from improving mortgage and sales market
conditions, with the underwritten pipeline at the end of February 16% higher
than the same time last year.
Following a year of reinvigorating the business, and with improving market
conditions, the Group is on track to deliver against its target of £25
million to £30 million of adjusted operating profit over the medium-term and
live up to our brand ethos: "We get it done".
Guy Gittins
Chief Executive Officer
4 March 2024
Financial review
2023 2022 Change
£m £m
Revenue and profit measures
Revenue 147.1 140.3 +5%
Contribution(1) 93.2 91.3 +2%
Contribution margin(1) 63.4% 65.1% (170 bps)
Adjusted EBITDA(1) 17.5 16.5 +6%
Adjusted EBITDA margin(1) 11.9% 11.8% +11 bps
Adjusted operating profit(1) 14.3 13.9 +2%
Adjusted operating profit margin(1) 9.7% 9.9% (20 bps)
Profit before tax 7.9 11.9 (34%)
Profit after tax 5.5 9.6 (43%)
Earnings per share
Adjusted earnings per share (basic) 3.0p 3.1p (3%)
Earnings per share (basic) 1.8p 3.0p (40%)
Net free cash flow and net (debt)/cash
Net free cash (outflow)/inflow(1,2) (0.1) 7.7 n/a
Net (debt)/cash as at 31 December(1) (6.8) 12.0 n/a
Dividends
Interim dividend per share 0.2p 0.2p -
Final dividend per share 0.7p 0.7p -
(1)APMs are defined, purpose explained and reconciled to statutory measures
within Note 16 of the financial statements.
(2)Net free cash flow is from continuing and discontinued operations.
Financial overview
As presented in the table above, key financial performance measures include:
· Revenue increased by 5% to £147.1 million (2022: £140.3
million), with Lettings revenue up 16%, Sales revenue down 14% and Financial
Services revenue down 14%.
· Adjusted EBITDA increased by 6% to £17.5 million (2022: £16.5
million) and adjusted operating profit increased by 2% to £14.3 million
(2022: £13.9 million).
· Profit before tax from continuing operations decreased to £7.9
million (2022: £11.9 million) and profit after tax decreased to £5.5 million
(2022: £9.6 million).
· Basic adjusted earnings per share was 3.0p (2022: 3.1p) and basic
earnings per share was 1.8p (2022: 3.0p).
· Net free cash flow was a £0.1 million outflow (2022: £7.7
million inflow) and net debt at the year end was £6.8 million (2022: £12.0
million net cash) reflecting the uses of cash explained on page 19.
· An interim dividend of 0.2p per share was paid in September 2023.
The Board has proposed a final dividend of 0.7p per share which maintains the
total dividend for the year at 0.9p per share (2022: 0.9p per share).
Revenue
Revenue Volumes(1) Revenue per transaction(1)
2023 2022 Change 2023 2022 Change 2023 2022 Change
£m £m £ £
Lettings 101.2 86.9 +16% 19,334 20,640 (6%) 5,234 4,210 +24%
Sales 37.2 43.2 (14%) 2,871 3,215 (11%) 12,942 13,431 (4%)
Financial Services 8.8 10.2 (14%) 5,033 5,003 +1% 1,745 2,043 (15%)
Total 147.1 140.3 +5%
(1')Volumes' and 'Revenue per transaction' are defined in Note 16 of the
financial statements.
The Group consists of three operating segments: Lettings, Sales and Financial
Services. Lettings represents 69% (2022: 62%), Sales 25% (2022: 31%) and
Financial Services 6% (2022: 7%) of total revenue. Non-cyclical and recurring
revenue streams, generated by Lettings and refinance activity within Financial
Services, represents 72% (2022: 65%) of Group revenue.
Lettings revenue
Lettings revenue increased by 16% to £101.2 million (2022: £86.9 million),
reflecting a 24% increase in average revenue per transaction, partially offset
by a 6% reduction in transaction volumes. Transaction volumes were lower
year-on-year due to lower renewal volumes as a consequence of longer average
tenancy terms reducing the number of renewal opportunities.
Revenue growth included organic growth of £6.3 million or 7%, £3.9 million
of acquisitive growth, and £4.1 million of additional interest earned on
client monies.
Organic revenue growth of £6.3 million (+7%) was driven by the following
factors:
· An operational focus to secure longer tenancy terms to drive
customer retention, which results in a greater proportion of revenue being
recognised at the start of tenancies.
· Growth in the cross-sell of our higher value property management
service, increasing the penetration of new deals under management by 9%
year-on-year.
· 11% increase in the market share of organic instructions which
boosted available stock supporting organic transaction volumes.
· 8% year-on-year increase in rental prices for new deals completed
in the period, with new deals representing 53% of 2023 total Lettings revenue.
The £3.9 million of acquisitive growth reflects 5 incremental months of
trading from the May 2022 acquisitions, 10 months of trading from the March
2023 acquisition of Atkinson McLeod and two months of trading from the
November 2023 acquisition of Ludlow Thompson.
The £4.1 million of additional interest earned on client monies reflects
higher interest rates and growth in client money held. Interest earned on
client money supports the operating costs of managing client money, which
includes staff costs, bank and card fees, and compliance costs.
Sales revenue
Sales revenue decreased by 14% to £37.2 million (2022: £43.2 million), with
the decrease driven by an 11% decrease in Sales exchange volumes compared to
2022. Sales volumes outperformed the market which saw a 22% reduction in
volumes (source: TwentyCi).
Average revenue per transaction was 4% lower than 2022 reflecting a 1%
decrease in the average price of properties sold (2023: £586,000; 2022:
£590,000) as sellers adjusted prices to market conditions, whilst commission
rates remained robust at 2.25% (2022: 2.29%). The 1% decrease in the average
price of properties sold compared to 2.4% reduction in London property values
(source: Nationwide House Price Index) reflecting market share growth in
higher value properties.
Financial Services revenue
Financial Services revenue decreased by 14% to £8.8 million (2022: £10.2
million), reflecting a 1% increase in volumes and a 15% decrease in average
revenue per transaction. Lower average revenue per transaction was driven by
lower average loan sizes, reduced new purchase volumes and an increase in
lower value product transfers within the refinance business. In 2023, £4.4
million (51% of revenue) was generated from non-cyclical refinance activity
and £4.3 million (49% of revenue) from purchase activity which is more
cyclical in nature.
Contribution and contribution margin
2023 2022
£m margin £m margin
Lettings 75.4 74.5% 64.8 74.5%
Sales 14.5 38.9% 22.0 51.0%
Financial Services 3.4 38.8% 4.5 43.9%
Total 93.2 63.4% 91.3 65.1%
Contribution, defined as revenue less direct salary costs of front office
staff and bad debt charges, increased to £93.2 million (2022: £91.3
million). Contribution margin for the period was 63.4% (2022: 65.1%)
reflecting the following segmental margin changes:
· Lettings contribution margin remained flat at 74.5% reflecting
growth in higher margin revenues, such as property management services,
cross-sell of ancillary services and higher interest on client monies, offset
by 12% growth in Lettings fee earner headcount year-on-year in order to drive
organic revenue growth in future periods.
· Sales contribution margin decreased to 38.9% (2022: 51.0%) due to
reduced market volumes and a 9% increase in fee earner headcount to build
bench strength ahead of improving sales market conditions. Within Sales,
dependent on market conditions, it takes at least 12 months for fee earners to
become fully productive.
· Financial Services margin decreased to 38.8% (2022: 43.9%) due to
reduced market purchase volumes, a lower margin revenue mix and a 9% increase
in fee earner headcount. Similar to Sales, dependent on market conditions, it
takes at least 12 months for fee earners to become fully productive.
Total average fee earner headcount across Lettings, Sales and Financial
Services is up 11% at 829 (2022: 749) as fee earner capacity is rebuilt.
Furthermore, a 9% improvement in staff retention across Lettings and Sales
reflecting investment in the culture is driving continuous improvement in the
average tenure of fee earners which will drive future growth opportunities.
Adjusted operating profit and adjusted operating profit margin
2023 2022
£m margin £m margin
Lettings 25.8 25.5% 18.0 20.7%
Sales (10.0) (26.8%) (3.2) (7.5%)
Financial Services 0.7 7.4% 1.8 17.3%
Corporate costs (2.3) n/a (2.6) n/a
Total 14.3 9.7% 13.9 9.9%
Adjusted operating profit for the period was £14.3 million (2022: £13.9
million) and adjusted operating margin was 9.7% (2022: 9.9%). Refer to Note 2
of the financial statements for a reconciliation of adjusted operating profit
to the closest equivalent IFRS measure.
Consistent with prior periods, for the purposes of segmental reporting, shared
costs relating to the estate agency businesses are allocated between Lettings
and Sales with reference to relevant cost drivers, such as front office
headcount in the respective businesses. Corporate costs are not allocated to
the operating segments and are presented separately.
Lettings adjusted operating profit increased by £7.9 million to £25.8
million, which includes organic growth of £3.1 million, incremental
acquisition growth of £0.7 million and £4.1 million of additional interest
on client monies. Sales operating loss increased by £6.8 million to £10.0
million and Financial Services operating profit decreased by £1.1 million to
£0.7 million, reflecting the fall in new purchase market volumes and
investment in fee earners as previously mentioned.
Within adjusted operating profit the following non-cash charges were incurred:
2023 2022
£m £m
Depreciation - property, plant and equipment 2.4 2.1
Amortisation - non-acquired intangibles 0.4 0.5
Amortisation - acquired intangibles 1.4 1.0
Share-based payments 1.2 1.0
Total non-cash charges 5.4 4.7
ADJUSTED EBITDA and adjusted EBITDA MARGIN
2023 2022
£m margin £m margin
Total 17.5 11.9% 16.5 11.8%
Adjusted EBITDA, which excludes non-cash depreciation, amortisation and
share-based payment charges, is defined on a basis consistent with that of the
Group's revolving credit facility covenants. Since the metric includes IFRS 16
lease depreciation and IFRS 16 lease finance cost the measure fully reflects
the Group's lease cost base. Refer to Note 16 of the financial statements for
a reconciliation of adjusted EBITDA to the closest equivalent IFRS measure.
Adjusted EBITDA increased by 6% to £17.5 million (2022: £16.5 million) and
Adjusted EBITDA margin increased to 11.9% (2022: 11.8%). Adjusted EBITDA
growth of 6% outpaced adjusted operating profit growth of 2% due to higher
property, plant and equipment depreciation (£0.3 million higher than 2022),
higher amortisation (£0.2 million higher than 2022) and higher non-adjusted
share-based payment charges (£0.1 million higher than 2022).
Adjusted items
A net adjusted items charge of £4.5 million (2022: £0.1 million net charge)
was incurred in the year. Adjusted items, 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. The table below
provides detail of the adjusted items in the period.
2023 2022
£m £m
Branch asset impairment charge / (reversal) 3.4 (0.3)
Net property related charge / (reversal) 0.7 (0.4)
Transaction related costs 0.4 0.2
Reorganisation costs - 0.6
Total net adjusted items charge 4.5 0.1
£4.3 million of the total net adjusted items charge relates to the following
items, of which £3.3 million is cash related and £1.0 million is non-cash
related:
· £3.6 million relates to the decision to integrate Ludlow
Thompson into the Foxtons network to deliver cost synergies; and
· £0.7 million relates to the closure of three Foxtons branches as
the Group consolidates branches to deliver cost savings.
Profit before taX AND ADJUSTED PROFIT BEFORE TAX
2023 2022
£m £m
Adjusted operating profit 14.3 13.9
Less: adjusted items (4.5) (0.1)
Operating profit 9.8 13.8
Less: net finance costs and other losses (1.9) (1.9)
Profit before tax 7.9 11.9
Add back: adjusted items 4.5 0.1
Adjusted profit before tax 12.4 12.0
Profit before tax has decreased by 34% to £7.9 million (2022: £11.9 million)
due to £4.5m (2022: £0.1 million) of adjusted item charges as previously
noted. Net finance costs and other losses of £1.9 million (2022: £1.9
million), of which £2.0 million relates to IFRS 16 lease finance costs, were
incurred in the period. Adjusted profit before tax, which excludes adjusted
items, is £12.4 million (2022: £12.0 million).
profit after tax
2023 2022
£m £m
Profit before tax 7.9 11.9
Less: current tax charge (2.8) (2.2)
Less: deferred tax credit/(charge) 0.4 (0.2)
Profit after tax 5.5 9.6
The Group has a low-risk approach to its tax affairs and all business
activities are within the UK and are UK tax registered and fully tax
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 is transparent, open and honest in its dealings with tax authorities.
Profit after tax of £5.5 million (2022: £9.6 million) is after a total tax
charge of £2.4 million (2022: £2.4 million), of which £0.4 million credit
(2022: £0.2 million charge) relates to non-cash deferred tax accounting and
£2.8 million (2022: £2.2 million) relates to current tax.
The effective tax rate for the period was 30.5% (2022: 19.9%), which compares
to the statutory corporation tax rate of 23.5% (2022: 19.0%). The 2023
effective tax rate is higher than the statutory corporation tax rate due to
non-deductible expenses and adjustments in respect of previous periods.
Net deferred tax liabilities totalled £26.2 million (2022: £25.7 million),
which comprise £28.2 million (2022: £27.0 million) of deferred tax
liabilities relating to the Group's intangible assets, offset by deferred tax
assets of £1.9 million (2022: £1.4 million). The deferred tax assets relate
to tax losses brought forward which are expected to be recovered through
future taxable profits.
The Group received £0.3 million in tax refunds during the year (2022: £nil).
ADJUSTED operating cost base
The Group defines its adjusted operating cost base as the difference between
revenue and adjusted operating profit, excluding depreciation of property,
plant and equipment and amortisation of intangible assets. The reconciliation
of the adjusted operating cost base measure is presented below:
2023 2022
£m £m
Revenue 147.1 140.3
Less: Adjusted operating profit (14.3) (13.9)
Difference between revenue and adjusted operating profit 132.9 126.4
Less: Property, plant and equipment depreciation (2.4) (2.1)
Less: Amortisation (1.8) (1.6)
Adjusted operating cost base 128.7 122.8
The table below analyses the adjusted operating cost base into five
categories. The adjusted operating cost base increased by £5.9 million to
£128.7 million (2022: £122.8 million), with £1.9 million attributable to
incremental acquisition related operating costs.
2023 2022
£m £m
Direct costs(1) 53.9 49.0
Branch operating costs(2) 32.5 32.0
Centralised revenue generating operating costs(3) 14.9 13.5
Revenue generating operating costs 101.4 94.5
Central overheads(4) 25.1 25.7
Corporate costs(5) 2.3 2.6
Adjusted operating cost base 128.7 122.8
(1) Direct salary costs of branch fee earners and bad debt charges.
(2) Branch related operating costs shared between Lettings and Sales.
(3) Centralised fee earners, lead generation staff and Lettings property
management staff.
(4) Central overhead costs supporting branch operations.
(5) Corporate costs not attributed directly to the operating activities of the
operating segments.
Key movements in the adjusted operating cost base in 2023 versus 2022 are as
follows:
· Direct costs increased by £4.9 million due to £2.2 million
higher basic salaries, reflecting an 11% investment in fee earner headcount,
£3.0 million increase in variable pay reflecting Lettings revenue growth and
lower bad debt charges.
· Centralised revenue generating operating costs increased by £1.4
million primarily due to a £0.9 million investment in centralised Lettings
functions reflecting growth in the Lettings portfolio and a £0.5 million
investment in centralised lead generation headcount.
· £0.9 million of cost savings across central overheads and
corporate costs reflecting initiatives to reduce overhead costs.
Earnings per share
2023 2022
£m £m
Profit after tax 5.5 9.6
Add back: adjusted items (net of tax) 3.6 -
Adjusted earnings for the purposes of adjusted earnings per share 9.1 9.6
Earnings per share (basic) 1.8p 3.0p
Earnings per share (diluted) 1.7p 3.0p
Adjusted earnings per share (basic) 3.0p 3.1p
Adjusted earnings per share (diluted) 2.9p 3.0p
Cash flow from operating activities and net free cash flow
2023 2022
From continuing and discontinued operations £m £m
Operating cash flow before movements in working capital 28.7 27.8
Working capital outflow (10.8) (1.2)
Income taxes paid (2.2) (2.7)
Net cash from operating activities 15.7 23.9
Repayment of IFRS 16 lease liabilities (12.5) (12.7)
Net cash used in investing activities(1) (3.2) (3.5)
Net free cash flow (0.1) 7.7
(1) Excludes £13.9 million (2022: £8.5 million) of cash outflows relating to
the acquisition of subsidiaries (net of any cash acquired), £nil (2022: £3.7
million) relating to the disposal of discontinued operations (net of cash
disposed) and £nil (2022: £0.4 million) related to the purchase of
investments.
Net cash flow before movements in working capital increased by £0.9 million
to £28.7 million (2022: £27.8 million) reflecting improvements in operating
cashflows.
Net cash from operating activities decreased by £8.2 million to £15.7
million (2022: £23.9 million) due to a working capital outflow driven by the
introduction of shorter landlord billing periods in order to improve the
competitiveness of our Lettings proposition and support the retention and
organic growth of the Lettings portfolio over the medium-term.
This landlord billing initiative has been successful in driving an increase in
average tenancy lengths, which under the Lettings revenue recognition policy,
also resulted in a greater proportion of revenue being recognised at the start
of tenancies. With Lettings revenue recognition outpacing cash collections,
there was a working capital outflow of £10.8 million (2022: £1.2 million
outflow). Working capital flows will normalise in the second half of 2024 as
the portfolio transitions to shorter billing periods.
Net free cash flow, from continuing and discontinued operations, was a £0.1
million outflow (2022: £7.7 million inflow), with the reduction due to the
Lettings working capital outflow previously noted.
Net debt
Net debt at 31 December 2023 was £6.8 million (2022: £12.0m net cash). The
net debt position reflects £13.9 million of acquisition related spend, £10.8
million of working capital investment in Lettings growth initiatives, £3.6
million of capital expenditure, £2.7 million of dividends paid and £1.1
million of share buybacks.
Revolving credit facility
In June 2023, the Group refinanced its revolving credit facility (RCF),
increasing the size of the committed facility from £5m to £20m and extending
the facility to June 2026, with an option to extend for a further two years At
31 December 2023, £11.7 million of the RCF was drawn (31 December 2022:
£nil). The facility provides increased strategic flexibility and supports the
acceleration of the Group's Lettings portfolio acquisition strategy. The terms
of the facility have remained materially the same as the previous facility and
it remains unsecured. Drawdowns on the facility accrue interest at SONIA
+1.65%.
The RCF is subject to a leverage covenant (net debt to EBITDA not to exceed
1.75) and an interest cover covenant (interest to EBITDA not to be less than
4) as defined in the facility agreement. Both covenants are calculated using
pre-IFRS 16 accounting principles. At 31 December 2023 the leverage ratio was
0.4x and the interest cover ratio was 59x.
Acquisitions
Atkinson McLeod
On 3 March 2023, the Group acquired the entire issued capital of Atkinson
McLeod. Gross purchase consideration was £8.2 million, with £7.5 million
paid to date and £0.7 million deferred for a period of 12 months post
completion. Acquired net assets were fair valued and include £2.6 million of
customer contracts and relationships and £5.6 million of acquired goodwill.
The acquisition contributed £1.8 million of revenue and £0.5 million of
adjusted operating profit in 2023, with cost synergies delivered in H2 2023.
Ludlow Thompson
On 6 November 2023, the Group acquired the entire issued capital of Ludlow
Thompson. Gross purchase consideration was £8.3 million, with £6.3 million
paid to date and £2.0 million deferred for a period of 12 months post
completion. Acquired net assets were fair valued and include £3.2 million of
customer contracts and relationships and £9.0 million of acquired goodwill.
The acquisition contributed £1.0 million of revenue and a £0.1 million
adjusted operating loss in 2023, with synergies planned to be delivered in H1
2024.
Refer to Note 9 of the financial statements for further details of the 2023
acquisitions.
Discontinued operations
In 2022, discontinued operations related to D&G Sales, which was acquired
alongside D&G Lettings and disposed of on 11 February 2022. In 2023, there
were no discontinued operations.
Other balance sheet positions
Significant balance sheet movements in the period:
· Goodwill of £40.7 million (2022: £26.0 million) and other
intangible assets of £114.9 million (2022: £109.3 million), with the
increase in goodwill and other intangible assets due to the acquisitions in
the year which contributed £14.7 million of goodwill and £5.9 million of
customer contracts and relationships.
· Total contract assets of £19.0 million (2022: £7.4 million) and
total contract liabilities of £12.2 million (2022: £10.0 million), with the
increase in contract assets driven by a focus on securing longer tenancy
terms, and the introduction of shorter billing periods for landlords opting to
agree to longer tenancy terms. The increase in contract liabilities was mainly
driven by acquired contract liabilities of £1.9 million.
· Intangible assets under construction of £1.5 million (2022:
£0.8 million) with the increase reflecting increased capital technology
development spend in the period.
· Trade and other payables of £21.3 million (2022: £16.7
million), with the increase in the balance due to an increase in trade
creditors of £0.9 million, an increase in contingent and deferred
consideration of £1.2 million, an increase in accruals and other creditors of
£1.4 million and an increase in VAT payable of £1.0 million.
· Borrowings of £11.8 million (2022: nil), with the increase in
the balance mainly due to a £11.7 million RCF drawdown to fund acquisitions
and working capital requirements.
· Total current liabilities of £57.1 million (2022: £38.7
million) have increased due to a £11.7 million RCF drawdown, an increase in
trade and other payables of £4.6 million and an increase in contract
liabilities of £2.1 million.
Dividend policy and capital allocation
In March 2023, the Group set out its revised strategy, medium-term targets and
its approach to capital allocation. Reflecting the Group's evolution over the
past few years to a business which is now focussed upon lettings, and whilst
maintaining the Group's approach to capital allocation, the Board has decided
to revise its dividend policy.
For 2024, the Board intends to adopt a progressive dividend policy whilst
maintaining strong dividend cover. The new policy aims to provide a more
reliable and growing income stream to investors, as well as enabling the Group
to pursue its strategic growth objectives.
The Group's approach to capital allocation, which includes the progressive
dividend policy referred to above, aims to support long-term growth and
shareholder returns. The Group's capital allocation priorities are set out
below:
· Maintain balance sheet strength to enable the Group to meet its
operational cash requirements and manage through cyclical sales markets.
· Invest in areas that drive organic growth and rebuild our
competitive advantages.
· Pay a progressive ordinary dividend.
· Deploy capital to acquire high quality lettings portfolios to
drive inorganic lettings growth.
· Return excess capital, not used for profitable growth, to
shareholders.
An interim dividend of 0.2p per share was paid in September 2023.The Board has
proposed a final dividend of 0.7p, which maintains the full year dividend at
0.9p per share (2022: 0.9p per share). The proposed dividend will be paid on
28 May 2024 to shareholders on the register at 12 April 2024, subject to
shareholder approval at the AGM due to be held on 7 May 2024. The shares will
be quoted ex-dividend on 11 April 2024.
Share buy back
A total of £1.1 million (2022: £4.9 million) of shares were bought back in
the year to return excess capital to shareholders. The Board will continue to
keep share buybacks under review, but in the context of other potential uses
of capital.
Related partY transactions
Related party transactions are disclosed in Note 14 of the financial
statements.
Treasury ManAgement
The Group seeks to ensure it has sufficient funds for day-to-day operations
and to enable strategic priorities to be pursued. Financial risk is managed by
ensuring the Group has access to sufficient borrowing facilities to support
working capital demands and growth strategies, with cash balances held with
major UK based banks. The Group has no foreign currency risk and as a
consequence has not entered into any financial instruments to protect against
currency risk.
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.
Risk management
The Group has identified its principal risks and uncertainties and they are
regularly reviewed by the Board and Senior Management. Refer to pages 23 and
24 for details of the Group's risk management framework and principal risks
and uncertainties.
Going concern, prospects and viability
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 operation for a period of at least 12 months from the date of
approval of the financial statements. Furthermore, the Directors have a
reasonable expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over a five-year viability period.
Refer to Note 1 of the financial statements for details of the Group's going
concern assessment and the going concern statement.
Chris Hough
Chief Financial Officer
4 March 2024
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, through the Audit Committee, regularly reviews the principal risks
facing the Group, together with the relevant mitigating controls, and
undertakes a robust risk assessment. In reviewing the principal risks, the
Board considers emerging risks, including climate-related risks, and changes
to existing risks. 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 risks is undertaken by specific executive risk
committees that analyse the risk universe by risk type across four key risk
types: strategic risks, financial risks, operational risks and compliance
risks. A common risk register is used across the Group to monitor gross and
residual risk, with the results assessed by the Audit Committee and Board. The
Audit Committee monitors the effectiveness of the risk management system
through management updates, output from the various executive risk committees
and reports from internal audit.
The principal 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.
Risk Impact on the Group
Market risk The key factors driving market risk are:
· Affordability, including ongoing cost of living increases, which in
turn may reduce market transaction levels.
· The market being reliant on the availability of affordable mortgage
finance, a deterioration in availability or an increase in borrowing rates may
adversely impact the performance of the Sales business. In 2023, borrowing
rates increased reflecting increases in the Bank of England base rate. Since
the start of 2024, there is improved stability of borrowing rates, with rates
beginning to fall which may support additional market activity;
· The market being impacted by changes in government policy such as
renters reform or changes in stamp duty legislation;
· A reduction in London's standing as a major financial city caused
by the macro-economic and political environment; and
· Heightened geopolitical risk which may increase market uncertainty
and customer confidence.
Competitor challenge The Group operates in a highly competitive marketplace and there is a risk the
Group could lose market share.
Market share loss could be the result of competitors scaling up (organically
or through acquisition), developing new customer service propositions,
changing pricing structures or launching alternative business models to drive
a competitive advantage.
Compliance with the legal and regulatory environment Breaches of laws or regulations could lead to financial penalties and
reputational damage.
Our estate agency business operates under a range of legal and regulatory
requirements, such as complying with certain money laundering regulations and
protecting client money in line with the relevant regulations.
Our Financial Services business is authorised and regulated by the Financial
Conduct Authority (FCA) and could be subject to sanctions for non-compliance.
During periods of interest rate volatility there is an increased risk of
compliance issues arising which require specific management.
Risk Impact on the Group
IT systems and cyber risk Our business operations are dependent on sophisticated and bespoke IT systems
which could fail or be deliberately 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 the Group may not be able to recruit or retain quality staff
to achieve its operational objectives or mitigate succession risk. As
experienced in the current labour market, increased competition for talent
leads to a reduction in the available talent pool and an increased cost of
labour. Additional risk could arise in the event there are changes in our
industry or markets that result in less attractive career opportunities.
Reputation and brand Foxtons is an iconic estate agency brand with high levels of brand
recognition. Maintaining a positive reputation and the prominence of the brand
is critical to protecting the future prospects of the business.
There is a risk our reputation and brand could be damaged through negative
press coverage and social media due to customer service falling below
expectations or because our actions are considered to be inappropriate.
We recognise the need to maintain our reputation and protect our brand by
delivering consistently high levels of service and maintaining a culture which
encourages our employees to act with the highest ethical standards.
Forward looking statements
This preliminary announcement contains certain forward-looking statements with
respect to the financial condition and results of operations of Foxtons Group
plc. These statements and forecasts involve risk and uncertainty because they
relate to events and depend upon circumstances that will occur in the future.
There are a number of factors that could cause actual results or developments
to differ materially from those expressed or implied by these forward-looking
statements and forecasts. The forward-looking statements are based on the
Directors' current views and information known to them at 4 March 2024. The
Directors do not make any undertakings to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise. Nothing in this statement should be construed as a profit forecast.
Responsibility statement
The following statement will be contained in the 2023 Annual Report and
Accounts.
Each of the Directors confirms that to the best of their knowledge:
· the consolidated and Parent Company financial statements, prepared
in accordance with the relevant financial reporting framework, give a true and
fair view of the assets, liabilities, financial position and profit of the
Company and the undertakings included in the consolidation taken as a whole;
· the Strategic Report and the Directors' Report include a fair
review of the development and performance of the business and the position of
the Group and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that it
faces; and
· the Directors confirm that the Annual Report and Accounts, taken as
a whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Group's position and performance,
business model and strategy.
On behalf of the Board
Guy Gittins Chris Hough
Chief Executive Officer Chief Financial Officer
4 March 2024 4 March 2024
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2023
Continuing operations Notes 2023 2022
£'000
£'000
Revenue 2 147,127 140,322
Direct operating costs (53,881) (49,011)
Other operating costs (83,456) (77,471)
Operating profit 9,790 13,840
Other losses - (35)
Finance income 381 137
Finance costs (2,277) (2,003)
Profit before tax from continuing operations 7,894 11,939
Tax charge 4 (2,404) (2,377)
Profit for the year from continuing operations 5,490 9,562
Discontinued operations
Loss after tax for the year from discontinued operations - (435)
Profit for the year attributable to shareholders of the Company 5,490 9,127
Earnings per share
From continuing operations
Basic earnings per share 6 1.8p 3.0p
Diluted earnings per share 6 1.7p 3.0p
( )
( )
From continuing and discontinued operations
Basic earnings per share 6 1.8p 2.9p
Diluted earnings per share 6 1.7p 2.8p
( )
( )
Adjusted measures
( )
From continuing operations
Adjusted EBITDA(1,4) 16 17,511 16,489
Adjusted operating profit(2,4) 2 14,256 13,909
Adjusted profit before tax(1,4) 16 12,360 12,008
Adjusted basic earnings per share(3,4) 6 3.0p 3.1p
( )
(1) Adjusted EBITDA and Adjusted profit before tax are APMs and are reconciled
to the nearest statutory measure in Note 16. Both measures exclude £4.47
million of adjusted items (2022: £0.07 million) which are detailed in Note 3.
(2) Adjusted operating profit is an APM and is reconciled to statutory profit
before tax in Note 2. The measure excludes £4.47 million of adjusted items
(2022: £0.07 million) which are detailed in Note 3.
(3) Adjusted basic earnings per share from continuing operations is an APM and
is reconciled to statutory earnings per share in Note 6.
(4 ) Further details of the APMs are provided in Note 16.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2023
Notes 2023 2022
£'000
£'000
Profit for the year attributable to shareholders of the Company 5,490 9,127
Other comprehensive loss:
Items that will not be reclassified to profit or loss (net of tax):
Changes in fair value of equity instruments at FVOCI - (3,711)
Other comprehensive loss for the period - (3,711)
Total comprehensive income for the period 5,490 5,416
Total comprehensive profit attributable to shareholders of the Company arising
from:
Continuing operations 5,490 5,851
Discontinued operations - (435)
5,490 5,416
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2023
Notes 2023 2022
£'000
£'000
Non-current assets
Goodwill 7 40,709 26,050
Other intangible assets 7 114,897 109,309
Property, plant and equipment 9,459 10,692
Right-of-use assets 8 42,471 42,570
Contract assets 4,748 1,688
Investments 31 6
Deferred tax assets 1,905 1,386
214,220 191,701
Current assets
Trade and other receivables 17,432 16,016
Contract assets 14,256 5,688
Current tax assets - 745
Cash and cash equivalents 4,989 12,027
Assets classified as held for sale 450 -
37,127 34,476
Total assets 251,347 226,177
Current liabilities
Trade and other payables (21,303) (16,694)
Current tax liabilities (79) -
Borrowings (11,682) -
Lease liabilities 8 (10,686) (10,708)
Contract liabilities (11,770) (9,745)
Provisions (1,609) (1,506)
(57,129) (38,653)
Net current liabilities (20,002) (4,177)
Non-current liabilities
Lease liabilities 8 (36,915) (35,753)
Borrowings 10 (98) -
Contract liabilities (439) (289)
Provisions (3,008) (1,765)
Deferred tax liabilities (28,153) (27,049)
(68,613) (64,856)
Total liabilities (125,742) (103,509)
Net assets 125,605 122,668
Equity
Share capital 11 3,301 3,301
Merger reserve 12 20,568 20,568
Other reserves 12 2,653 2,653
Own shares reserve 13 (12,092) (10,993)
Retained earnings 111,175 107,139
Total equity 125,605 122,668
The financial statements of Foxtons Group plc, registered number 07108742,
were approved by the Board of Directors on 4 March 2024.
Signed on behalf of the Board of Directors
Chris Hough
Chief Financial Officer
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2023
Notes Share Merger reserve Other reserves Own Retained earnings Total
capital
£'000
£'000
shares reserve
£'000
equity
£'000
£'000
£'000
Balance at 1 January 2023 3,301 20,568 2,653 (10,993) 107,139 122,668
Profit for the year attributable to shareholders of the Company - - - - 5,490 5,490
Changes in fair value of equity instruments at FVOCI - - - - - -
Total comprehensive income for the year - - - - 5,490 5,490
Dividends 5 - - - - (2,725) (2,725)
Own shares acquired in the period 13 - - - (1,112) - (1,112)
Credit to equity for share-based payments - - - - 1,284 1,284
Settlement of share incentive plan - - - 13 (13) -
Balance at 31 December 2023 3,301 20,568 2,653 (12,092) 111,175 125,605
Notes Share Merger reserve Other reserves Own Retained earnings Total
capital
£'000
£'000
shares reserve
£'000
equity
£'000
£'000
£'000
Balance at 1 January 2022 3,301 20,568 2,653 (6,059) 103,039 123,502
Profit for the year attributable to shareholders of the Company - - - - 9,127 9,127
Changes in fair value of equity instruments at FVOCI - - - - (3,711) (3,711)
Total comprehensive income for the year - - - - 5,416 5,416
Dividends 5 - - - - (1,487) (1,487)
Own shares acquired in the period 13 - - - (4,941) - (4,941)
Credit to equity for share-based payments - - - - 178 178
Settlement of share incentive plan - - - 7 (7) -
Balance at 31 December 2022 3,301 20,568 2,653 (10,993) 107,139 122,668
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2023
Notes 2023 2022
£'000
£'000
Operating activities
Operating profit from continuing operations 2 9,790 13,840
Operating loss from discontinued operations - (414)
Operating profit from continuing and discontinued operations 9,790 13,426
Adjustments for:
Depreciation of property, plant and equipment and right-of-use assets 12,910 12,197
Amortisation of intangible assets 7 1,791 1,551
Gain on disposal of discontinued operations - (180)
Net impairment/(reversal of impairment) of property, plant and equipment and 3 3,410 (310)
right-of-use assets
Loss on disposal of property, plant and equipment and intangibles 17 114
Gain on lease surrenders and lease modifications (894) -
Sub-lease asset impairment/(net gain on recognition of sub-lease asset) 190 (187)
Increase in provisions 422 1,055
Cash settlement of share incentive plan - (7)
Share-based payment charges 1,036 178
Operating cash flows before movements in working capital 28,672 27,837
Increase in receivables (12,136) (2,108)
Increase in payables 1,328 862
Cash generated by operations 17,864 26,591
Income taxes paid (2,192) (2,659)
Net cash from operating activities 15,672 23,932
Investing activities
Interest received 381 137
Proceeds on disposal of property, plant and equipment - 53
Purchases of property, plant and equipment (2,121) (2,953)
Purchases of intangibles 7 (1,495) (755)
Purchases of investments (25) (400)
Acquisition of subsidiaries (net of cash acquired) 9 (13,935) (8,490)
Disposal of discontinued operations - (3,715)
Net cash used in investing activities (17,195) (16,123)
Financing activities
Proceeds from borrowings 21,573 -
Repayment of borrowings (10,681) -
Dividends paid 5 (2,725) (1,487)
Interest on borrowings (236) (38)
Interest on lease liabilities (1,971) (1,965)
Repayment of lease liabilities 8 (10,554) (10,721)
Sub-lease receipts 191 281
Purchase of own shares 13 (1,112) (4,941)
Net cash used in financing activities (5,515) (18,871)
Net decrease in cash and cash equivalents (7,038) (11,062)
Cash and cash equivalents at beginning of year(1) comprised: 12,027 23,089
Cash and cash equivalents relating to continuing operations 12,027 19,374
Cash and cash equivalents held for sale (discontinued operations) - 3,715
Cash and cash equivalents at end of year(1) comprised: 4,989 12,027
Cash and cash equivalents relating to continuing operations 4,989 12,027
(1) Total Group balances, which include cash related to continuing and
discontinued operations.
NOTES TO THE FINANCIAL STATEMENTS
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
The consolidated preliminary results of the Company for the year ended 31
December 2023 comprise the Company and its subsidiaries.
The consolidated preliminary results of the Group for the year ended 31
December 2023 were approved by the Directors on 4 March 2024. These
consolidated preliminary results have been prepared in accordance with the
accordance with UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to companies reporting
under those standards. They do not include all the information required for
full annual financial statements to comply with UK-adopted International
Accounting Standards, and should be read in conjunction with the consolidated
financial statements of the Group as at and for the year ended 31 December
2023.
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.
The financial information for the year ended 31 December 2023 does not
constitute statutory accounts as defined in sections 435 (1) and (2) of the
Companies Act 2006. The auditor has reported on these accounts; their report
was unqualified, did not include a reference to any matters to which the
auditor drew attention by way of emphasis of matter and did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2022 have been delivered to
the Registrar of Companies and those for 2023 will be delivered following the
Company's 2024 Annual General Meeting.
1.3 Going concern
Going concern assessment
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 operation for a period of at least 12 months from the date of
approval of the consolidated financial statements. The assessment has taken
into consideration the Group's financial position, liquidity requirements,
recent trading performance and the outcome of reverse stress testing. At 31
December 2023, the Group was in a net debt position of £6.7 million (2022:
£12.0 million net cash) and a net current liability position of £20.0
million (2022: £4.2 million), both of which include the £11.7 million
drawdown on the Group's £20.0 million revolving credit facility ('RCF') used
to fund the Group's acquisition strategy and working capital requirements. The
facility is available for use until June 2026 and has an option to extend for
two further years to June 2028. For RCF terms refer to Note 10.
Reverse stress scenario
In assessing the Group's ability to continue as a going concern, the Directors
have stress tested the Group's cash flow forecasts using a reverse stress
scenario which incorporates a severe deterioration in market conditions.
Reverse stress testing seeks to determine the point at which the Group could
be considered to fail without taking further mitigating actions or raising
additional funds. For the purposes of the reverse stress test, the point of
failure has been defined as the point at which the Group breaches its RCF
covenants.
The reverse stress scenario has taken into consideration the revenue
characteristics of the Group, specifically the transactional nature of Sales
revenue, which contrasts to the recurring and non-cyclical nature of Lettings
revenue. The scenario assumes a severe macro-economic downturn from April 2024
to December 2025 which heavily impacts Sales and Financial Services revenues
since these streams are most sensitive to the macro-economic environment.
Additionally, Lettings revenues have been assumed to be impacted despite their
resilient nature. The key assumptions are summarised below:
· A 30% reduction in sales market transactions and a 16% reduction in
Lettings units compared to 2022, during which sales market conditions were
more normalised. For context, a 30% reduction in sales market transactions
would see transaction volumes fall c.10% compared to those levels seen in 2009
following the Global Financial Crisis.
· Additionally, the scenario incorporates a 10% reduction in house
prices and a 13% reduction in Lettings average revenue per transaction from
current levels, further reducing revenues.
· Under the reverse stress scenario, Sales revenue would be 23% lower
than 2023 and Lettings revenue would be 9% lower than 2023. Noting that 2023
Sales revenues were already at a depressed level, a further fall of 23% in
improving market conditions is considered to be unlikely.
· Under the scenario, it is assumed management would take mitigating
action to reduce discretionary spending and right size fee earner headcount to
reflect market conditions. The modelled actions include: reducing front office
headcount in line with the revenue reductions; reducing backoffice headcount;
reducing discretionary spend such as marketing; and pausing capital
expenditure.
In the unlikely event of the reverse stress scenario, the Group forecasts it
would breach the RCF's leverage covenant (refer to Note 10 for details of the
covenants) in March 2025. Under such a scenario, further mitigating actions
that could be taken, but not included in the reverse stress scenario, include
further reducing discretionary spend, further rationalising headcount, seeking
agreement to defer lease payments or raising additional funds.
1.4 Critical accounting judgements and key sources of estimation
uncertainty
The critical accounting judgements and key sources of estimation uncertainty
within these consolidated preliminary results are the same as those within the
2023 Annual Report and Accounts: 'Useful economic life of the brand intangible
asset' and 'impairment of intangibles with an indefinite life'.
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 Board is the Chief Operating Decision Maker
('CODM') 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) Financial Services.
(i) Lettings generates commission from the letting and
management of residential properties and income from interest earned on
tenants' deposits.
(ii) Sales generates commission on sales of residential
property.
(iii) Financial Services generates commission from the
arrangement of mortgages and related products under contracts with financial
service providers and receives administration fees from clients.
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 7.
The segmental disclosures include two APMs as defined below. Further details
of the APMs is provided in Note 16.
Contribution and contribution margin
Contribution is defined as revenue less direct operating costs (being salary
costs of front office staff and costs of bad debt). Contribution margin is
defined as contribution divided by revenue. These measures indicate the
profitability and efficiency of the segments before the allocation of shared
costs.
Adjusted operating profit and adjusted operating profit margin
Adjusted operating profit represents the profit before tax for the period
before adjusted items (defined below), finance income, finance cost and other
gains/losses. Adjusted operating profit margin is defined as adjusted
operating profit divided by revenue. As explained in Note 16, these measures
are used by the Board to measure delivery against the Group's strategic
priorities, to allocate resource and to assess segmental performance.
Adjusted items
Adjusted operating profit, adjusted operating profit margin and adjusted
earnings 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.
Refer to Note 3 for further information of the adjusted items recognised in
the period.
Segment revenues and results
The following is an analysis of the Group's continuing operations results by
reportable segment for the year ended 31 December 2023:
Lettings £'000 Sales Financial Services £'000 Corporate costs Group total £'000
£'000 £'000
Notes
Revenue 101,188 37,158 8,781 n/a 147,127
Contribution 16 75,381 14,455 3,410 n/a 93,246
Contribution margin 16 74.5% 38.9% 38.8% n/a 63.4%
Adjusted operating profit/(loss) 16 25,838 (9,974) 654 (2,262) 14,256
Adjusted operating profit/(loss) margin 16 25.5% (26.8%) 7.4% n/a 9.7%
Adjusted items 3 (4,466)
Operating profit 9,790
Finance income 381
Finance cost (2,277)
Profit before tax 7,894
Depreciation and amortisation Lettings £'000 Sales Financial Services £'000 Corporate costs Group total £'000
£'000 £'000
Depreciation(1) (8,080) (4,815) (15) - (12,910)
Amortisation from non-acquired intangibles (205) (130) (60) - (395)
Amortisation from acquired intangibles (1,315) (81) - - (1,396)
Total (9,600) (5,026) (75) - (14,701)
(1) Total depreciation of £12.9 million consists of £2.4m million of
property, plant and equipment depreciation and £10.5 million of IFRS 16 lease
depreciation (refer to Note 8).
The following is an analysis of the Group's continuing operations results by
reportable segment for the year ended 31 December 2022:
Lettings £'000 Sales Financial Services £'000 Corporate costs Group total £'000
£'000 £'000
Notes
Revenue 86,918 43,182 10,222 n/a 140,322
Contribution 16 64,788 22,040 4,483 n/a 91,311
Contribution margin 16 74.5% 51.0% 43.9% n/a 65.1%
Adjusted operating profit/(loss) 16 17,989 (3,231) 1,767 (2,616) 13,909
Adjusted operating profit/(loss) margin 16 20.7% (7.5%) 17.3% n/a 9.9%
Adjusted items 3 (69)
Operating profit 13,840
Other losses (35)
Finance income 137
Finance cost (2,003)
Profit before tax 11,939
D&G Sales (disposed 11 February 2022) is presented as a discontinued
operation.
Depreciation and amortisation Lettings £'000 Sales Financial Services £'000 Corporate costs Group total £'000
£'000 £'000
Depreciation(1) (7,517) (4,664) (16) - (12,197)
Amortisation from non-acquired intangibles (230) (195) (85) - (510)
Amortisation from acquired intangibles (913) (128) - - (1,041)
Total (8,660) (4,987) (101) - (13,748)
(1) Total depreciation of £12.2 million consists of £2.1 million of
property, plant and equipment depreciation and £10.1 million of IFRS 16 lease
depreciation (refer to Note 8).
3. Adjusted items
Adjusted operating profit, adjusted operating profit margin, adjusted EBITDA,
adjusted EBITDA margin, adjusted profit before tax, adjusted earnings per
share, exclude adjusted items. These APMs are defined, purpose explained and
reconciled to statutory measures in Note 2 and Note 16. The following items
have been classified as adjusted items attributable to continuing operations
in the period.
2023 2022
£'000 £'000
Branch asset (reversal)/impairment charge (1) 3,410 (310)
Net property related charge/(reversal)(2) 671 (439)
Transaction related costs (3) 385 199
Reorganisation costs(4) - 619
4,466 69
(1) The branch impairment charge mainly relates to plant, property and
equipment £1,037k (2022: impairment reversal of £181k) and right-of-use
assets £2,373k (2022: reversal of £129k) (refer to Note 8).
(2) Net property related charge/(reversal) include dilapidations, rates,
service charges and other unavoidable costs under onerous leases, net
sub-lease impairment offset by a net gain on the disposal of IFRS 16 balances.
(3) Transaction related costs relate to costs involved with the acquisition of
Atkinson McLeod and Ludlow Thompson (2022: for the acquisition of IMM
Properties Limited).
(4) Net cost of Executive reorganisation that was completed in 2022.
£4.3 million of the total net adjusted items charge relates to the following
items, of which £3.3 million is cash related and £1.0 million is non-cash
related:
• £3.6 million relates to the decision to integrate
Ludlow Thompson into the Foxtons network to deliver cost synergies; and
• £0.7 million relates to the closure of three Foxtons
branches as the Group consolidates branches to deliver cost savings.
Net cash outflow from adjusted items during the year totalled £0.6 million
(2022: £1.4 million).
4. Taxation
Recognised in the Group income statement
The components of the tax charge recognised in the Group income statement are:
2023 2022
£'000 £'000
Current tax
Current period UK corporation tax 2,684 2,078
Adjustment in respect of prior periods 160 82
Total current tax charge 2,844 2,160
Deferred tax
Origination and reversal of temporary differences (471) 376
Impact of change in tax rate (24) (12)
Adjustment in respect of prior periods 55 (147)
Total deferred tax (credit)/charge (440) 217
Tax charge on profit on ordinary activities from continuing operations 2,404 2,377
Corporation tax for the year ended 31 December 2023 is calculated at 23.5%
(2022: 19%) of the estimated taxable profit for the period.
The March 2021 Spring Budget announced an increase in the UK corporate tax
rate from 19% to 25%, from 1 April 2023. The rate was substantively enacted on
24 May 2021. Deferred tax assets/liabilities have been recognised at 25% to
the extent they are expected to unwind after 1 April 2023.
Reconciliation of effective tax charge
The tax on the Group's profit before tax from continuing operations differs
from the standard UK corporation tax rate of 23.5% (2022: 19%), because of the
following factors:
2023 2022
£'000
£'000
Profit before tax from continuing operations 7,894 11,939
Tax at the UK corporation tax rate (see above)
1,855 2,268
Tax effect of expenses that are not deductible 483 354
Tax effect of non-taxable income (12) -
Other differences - share options (51) 242
Adjustment in respect of previous periods 215 (65)
Impact on deferred tax of change in tax rate (24) (12)
Recognition of a deferred tax asset (62) (410)
Tax charge on loss on ordinary activities 2,404 2,377
Effective tax rate 30.5% 19.9%
Group relief is claimed and surrendered between Group companies for
consideration equal to the tax benefit.
Deferred tax arising in the reporting period and not recognised in net profit
or loss or other comprehensive income but directly charged to equity is £248k
(2022: £8k credit) and relates to deferred tax arising on share-based payment
schemes.
5. Dividends
2023 2022
£'000
£'000
Final dividend for the year ended 31 December 2022: 0.70p (31 December 2021: 2,122 856
0.27p) per ordinary share
Interim dividend for the year ended 31 December 2023: 0.20p (31 December 2022: 603 631
0.20p) per ordinary share
2,725 1,487
For 2023, the Board has proposed a final dividend of 0.70p per ordinary share
(£2.1 million) to be paid on 28 May 2024.
6. earnings per share
Basic earnings per share is calculated by dividing the earnings for the year
attributable to ordinary equity holders of the Company by the weighted average
number of ordinary shares outstanding during the year.
Diluted earnings per share is calculated by dividing the earnings attributable
to ordinary equity holders of the Company by the weighted average number of
ordinary shares in issue during the financial period, excluding own shares
held, plus the weighted average number of ordinary shares that would be issued
on conversion of all the potentially dilutive ordinary share awards into
ordinary shares. The Company's potentially dilutive ordinary shares are in
respect of share awards granted to employees.
Continuing operations Total Group
(continuing and discontinued operations)
2023 2022 2023 2022
£'000
£'000
£'000
£'000
Profit for the purposes of basic and diluted earnings per share 5,490 9,562 5,490 9,127
Adjusted for:
Adjusted items (including associated taxation)¹ 3,585 47 3,585 (133)
Adjusted earnings for the purposes of adjusted earnings per share 9,075 9,609 9,075 8,994
Number of shares 2023 2022 2023 2022
Weighted average number of ordinary shares for the purposes of basic earnings 302,039,983 314,818,812 302,039,983 314,818,812
per share
Effect of potentially dilutive ordinary shares 12,877,904 5,824,398 12,877,904 5,824,398
Weighted average number of ordinary shares for the purpose of diluted earnings 314,917,887 320,643,210 314,917,887 320,643,210
per share
Earnings per share (basic) 1.8p 3.0p 1.8p 2.9p
Earnings per share (diluted) 1.7p 3.0p 1.7p 2.8p
Adjusted earnings per share (basic) 3.0p 3.1p 3.0p 2.9p
Adjusted earnings per share (diluted) 2.9p 3.0p 2.9p 2.8p
(1) Adjusted items relating to continuing operations of £4,466k (2022: £69k)
per Note 3, and associated tax credit of £881k (2022: £22k charge),
resulting in an after tax charge of £3,585k (2022: £47k). Adjusted items
relating to discontinued operations of £nil (2022: £180k charge), less £nil
associated tax charge (2022: £nil), resulting in an after tax credit of £nil
(2022: £180k charge).
7. Goodwill and other intangibles
2023 Goodwill Brand Software Assets under construction Customer Total
£'000
£'000
£'000
contracts and relationships
£'000
£'000
£'000
Cost
At 1 January 2023 35,869 99,000 2,244 755 12,041 149,909
Additions - - 763 732 - 1,495
Acquired through business combinations (refer to Note 9) 14,659 - - - 5,884 20,543
At 31 December 2023 50,528 99,000 3,007 1,487 17,925 171,947
Accumulated amortisation and impairment losses
At 1 January 2023 9,819 - 1,798 - 2,933 14,550
Amortisation - - 395 - 1,396 1,791
At 31 December 2023 9,819 - 2,193 - 4,329 16,341
Net carrying value
At 31 December 2023 40,709 99,000 814 1,487 13,596 155,606
At 1 January 2023 26,050 99,000 446 755 9,108 135,359
2022 Goodwill Brand Software Assets under construction Customer Total
£'000
£'000
£'000
contracts and relationships
£'000
£'000
£'000
Cost
At 1 January 2022 27,535 99,000 2,607 - 9,143 138,285
Additions - - - 755 - 755
Disposals - - (363) - - (363)
Acquired through business combinations 8,334 - - - 2,898 11,232
At 31 December 2022 35,869 99,000 2,244 755 12,041 149,909
Accumulated amortisation and impairment losses
At 1 January 2022 9,819 - 1,589 - 1,892 13,300
Amortisation - - 510 - 1,041 1,551
Disposal - - (301) - - (301)
At 31 December 2022 9,819 - 1,798 - 2,933 14,550
Net carrying value
At 31 December 2022 26,050 99,000 446 755 9,108 135,359
At 1 January 2022 17,716 99,000 1,018 - 7,251 124,985
( )
Annual impairment review
a) Carrying value of goodwill and intangible assets with indefinite
lives
The carrying values of goodwill and intangible assets with indefinite lives
are summarised below. These assets have been subject to an annual impairment
review.
2023 2022
£'000
£'000
Lettings goodwill 40,709 26,050
Brand asset - Sales and Lettings 99,000 99,000
139,709 125,050
• Lettings goodwill is allocated to the Lettings CGU and tested at
this level. This allocation represents the lowest level at which goodwill is
monitored for internal management purposes and is not larger than an operating
segment.
• The brand asset has been tested for impairment by aggregating the
values in use relating to the Lettings and Sales CGUs. No brand value is
allocated to the Financial Services CGU since the Foxtons brand only relates
to the Sales and Lettings CGUs. This grouping represents the lowest level at
which management monitors the brand internally and reflects the way in which
the brand asset is viewed, rather than being allocated to each segment on an
arbitrary basis.
b) Impairment review approach and outcome
The Group tests goodwill and the indefinite life brand asset annually for
impairment, or more frequently if there are indicators of impairment, in
accordance with IAS 36 'Impairment of Assets'.
The Group has determined the recoverable amount of each CGU from value in use
calculations. 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 to the CGUs.
Following the annual impairment review performed as at 30 September 2023,
there has been no impairment of the carrying amount of goodwill or the brand
asset.
c) Impairment review assumptions
The assumptions used in the annual impairment review are detailed below:
Cash flow assumptions
The key variables in determining the cash flows are Lettings revenues, Sales
revenues and the associated direct costs incurred during the forecast period.
These assumptions are based upon a combination of past experience of
observable trends and expectations of future changes in the market. Key
assumptions are as follows:
• Sales revenue increases by a CAGR (compound average growth rate)
of 10.7% as the market recovers 5% in 2024 and 2.5% annually from there and
market share growth continues.
• Within the Sales revenue assumption, house prices are assumed to
fall 2% in 2024 before increasing 2.5% annually from 2026.
• Lettings revenue is assumed to grow at a CAGR of 3.4% over the
forecast period, excluding future Lettings portfolio acquisitions that must be
excluded from forecast cash flows under the relevant accounting standard.
Long-term growth rates
To evaluate the recoverable amounts of each CGU, a terminal value has been
assumed after the fifth year and includes a long-term growth rate in the cash
flows of 2% (2022: 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 in which each CGU operates and
external long-term growth forecasts.
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 and incorporates lease
debt held under IFRS 16. The WACC has been adjusted to reflect risks specific
to each CGU not already reflected in the future cash flows for that CGU.
The pre-tax discount rate used to discount Lettings cash flows used in the
assessment of Lettings goodwill is 17.1% (2022: 16.0%). The pre-tax discount
rate used to discount aggregated Sales and Lettings cash flows used in the
assessment of the brand asset is 17.1% (2022: 16.0%). The year-on-year
increase in the discount rate is attributable to market changes in WACC
inputs, primarily the risk free rate.
d) Sensitivity analysis
Sensitivity analysis has been performed to assess whether the carrying values
of goodwill and the brand asset are sensitive to reasonably possible changes
in key assumptions and whether any changes in key assumptions would materially
change the carrying values. Lettings goodwill showed significant headroom
against all sensitivity scenarios, while the brand asset is sensitive to
reasonably possible changes in key assumptions.
The key assumption in the brand impairment assessment is the forecast revenues
for the Lettings and Sales businesses. 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 £60.4 million (2022:
£71.1 million) or 38% (2022: 49%) of the carrying value under test. Cash
flows are sourced from the Group's Board approved plan while also complying
with the requirements of the relevant accounting standard.
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 from 5.5% to 3.4%. Under a reasonably possible downside scenario, in
which Sales revenue only fully recovers to 2022 levels by 2028, Lettings
revenue growth is limited to 2.2% and the Group takes appropriate mitigating
actions, such as reducing discretionary spend and direct costs, the brand
asset headroom would be reduced to £1.1 million.
8. Leases
Group as a lessee
The Group has lease contracts for its head office, branches and for motor
vehicles used in its operations. With the exception of short-term leases, each
lease is recognised on the balance sheet with a right-of-use asset and a lease
liability. The Group classifies its right-of-use assets in a consistent manner
to its property, plant and equipment.
Generally, the right-of-use assets can only be used by the Group, unless there
is a contractual right for the Group to sub-lease the asset to another party.
The Group is also prohibited from selling or pledging the leased assets as
security.
Right-of-use assets
The carrying amounts of the right-of-use assets recognised and the movements
during the year are outlined below:
Property Motor vehicles Total
£'000
£'000
£'000
At 1 January 2022 38,409 5,423 43,832
Additions 6,346 2,218 8,564
Acquired through business combinations 569 30 599
Lease modifications 138 - 138
Disposals (154) (404) (558)
Depreciation (7,018) (3,116) (10,134)
Net impairment reversal/(charge) 163 (34) 129
At 31 December 2022 38,453 4,117 42,570
Additions 5,701 7,831 13,532
Acquired through business combinations (refer to Note 9) 1,891 - 1,891
Lease modifications (298) - (298)
Disposals (1,845) (495) (2,340)
Depreciation (7,012) (3,499) (10,511)
Impairment charge (2,373) - (2,373)
At 31 December 2023 34,517 7,954 42,471
Lease liabilities
The carrying amounts of lease liabilities recognised and the movements during
the year are outlined below:
Property Motor vehicles Total
£'000
£'000
£'000
At 1 January 2022 42,608 5,475 48,083
Additions 6,279 2,218 8,497
Acquired through business combinations 777 103 880
Lease modifications 138 - 138
Disposals - (416) (416)
Interest charge 1,839 126 1,965
Payments (9,452) (3,234) (12,686)
At 31 December 2022 42,189 4,272 46,461
Additions 5,609 7,831 13,440
Acquired through business combinations (refer to Note 9) 1,891 - 1,891
Lease modifications (574) - (574)
Disposals (2,577) (486) (3,063)
Interest charge 1,771 200 1,971
Payments (8,832) (3,693) (12,525)
At 31 December 2023 39,477 8,124 47,601
Current 7,394 3,292 10,686
Non-current 32,083 4,832 36,915
During the year ended 31 December 2023, the difference in lease modifications
movements recognised within right-of-use assets and lease liabilities,
totalling £0.3 million, is recognised as an adjusted item and included in the
net property related charge within Note 3.
Of the movements in the year, cash payments in respect to principal lease
instalments totalling £12.5 million were made (2022: £12.7 million) and the
remaining net movement of £13.7 million (2022: £11.1 million) was non-cash
in nature.
At the balance sheet date, continuing operations had outstanding commitments
for future minimum lease payments which fall due as follows:
2023 2022
£'000
£'000
Maturity analysis - contractual undiscounted cash flows from continuing
operations
Within one year 12,488 11,671
In the second to fifth years inclusively 31,007 30,147
After five years 14,739 10,598
58,234 52,416
The Group has elected not to recognise a lease liability for short-term leases
(expected lease term is 12 months or less), in line with the IFRS 16
short-term lease exemption. Payments made under such leases are expensed on a
straight-line basis. At 31 December 2023, the Group had a commitment of less
than £0.1 million in relation to short-term leases.
Amounts recognised in the profit or loss
The following are the amounts recognised in profit or loss during the year, in
respect of the leases held by the Group as a lessee:
2023 2022
£'000 £'000
Continuing operations Discontinued operations Total Group Continuing operations Discontinued operations Total Group
Depreciation of right-of-use assets 10,511 - 10,511 10,134 - 10,134
Net impairment of right-of-use assets/(reversal of impairment)¹ 2,373 - 2,373 (129) - (129)
Interest expense on lease liabilities 1,971 - 1,971 1,965 21 1,986
Expenses relating to short-term leases 1,438 - 1,438 1,503 - 1,503
Total amount recognised in profit or loss 16,293 - 16,293 13,473 - 13,494
(1) Net impairment of right-of-use assets/(reversal of impairment) is
classified as an adjusted item due to the one-off nature and is included in
the branch asset impairment charge/(reversal) within Note 3.
The Group as an intermediate lessor
Finance lease receivables
The Group is an intermediate lessor for various lease arrangements considered
to be finance sub-leases. The amounts recognised in the profit or loss during
the year are outlined below:
2023 2022
£'000
£'000
Finance income under finance leases recognised in the period 41 52
As at 31 December 2023 and 2022, third parties had outstanding commitments due
to the Group for future undiscounted minimum lease payments, which fall due as
follows:
2023 2022
£'000
£'000
Within one year 210 320
In the second to fifth years inclusive 606 890
After five years 351 470
1,167 1,680
9. Business Combinations
On 3 March and 6 November 2023 the Group acquired 100% of the share capital of
the following independent London estate agents which are primarily focused on
providing Lettings and Property Management services:
· Atkinson McLeod Limited ('Atkinson McLeod');
· Ludlow Thompson Holdings Limited and its subsidiaries
Ludlowthompson SLM Ltd and Ludlowthompson.com Limited (collectively 'Ludlow
Thompson').
The acquisitions are in line with the Group's strategy of acquiring high
quality businesses with strong lettings portfolios.
A purchase price allocation exercise has been completed for Atkinson McLeod
which identified £2.7 million of acquired intangible assets relating to
customer contracts and relationships, which are identifiable and separable,
and will be amortised over 10 years.
A provisional purchase price allocation exercise, which will be finalised in
the first half of 2024, has been completed for Ludlow Thompson which
provisionally identified £3.2 million of acquired intangible assets relating
to customer contracts and relationships, which are identifiable and separable,
and will be amortised over 10 years.
The discount rates applied to the forecast cash flows from the acquired
customer contracts and relationships are based on Atkinson McLeod's and Ludlow
Thompson's weighted average cost of capital (WACC), calculated using a capital
asset pricing model. The WACC has been adjusted to reflect risks specific to
Atkinson McLeod and Ludlow Thompson not already reflected in the future cash
flows.
£5.6 million and £9.0 million of goodwill has arisen on the acquisitions of
Atkinson McLeod and Ludlow Thompson, respectively, and is primarily
attributable to synergies, new customers, the acquired workforce and business
expertise. The acquired goodwill has been allocated for impairment testing
purposes to the Group's Lettings cash-generating unit which is expected to
benefit from the synergies of the combination. None of the goodwill is
expected to be deductible for tax purposes.
Business combinations - contribution to 2023
From the date of acquisition, 3 March 2023, the Atkinson McLeod business
combination contributed £1.8 million of revenue and £0.5 million adjusted
operating profit to the Group's performance for the year. If the acquisition
had taken place at the beginning of the year, revenue for the period would
have been £2.4 million higher and adjusted operating profit would have
increased by £0.8 million.
From the date of acquisition, 6 November 2023, the Ludlow Thompson business
combination contributed £1.0 million of revenue and £0.1 million adjusted
operating loss to the Group's performance for the year. If the acquisition
had taken place at the beginning of the year, revenue for the period would
have been £6.7 million higher and adjusted operating profit would have
increased by £0.2 million.
Assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of the combined
acquired entities as at the date of acquisition are disclosed below. The fair
value of the identifiable assets and liabilities are estimated by taking into
consideration all available information at the reporting date.
Atkinson
McLeod Ludlow Total
£'000 Thompson £'000
£'000
Assets
Acquired intangible assets recognised on acquisition 2,651 3,233 5,884
Property, plant and equipment 450 99 549
Right-of-use assets - 1,891 1,891
Cash and cash equivalents 1,301 5 1,306
Trade and other receivables 68 358 426
Contract assets 185 876 1,061
4,655 6,462 11,117
Liabilities
Trade and other payables 304 2,031 2,335
Contract liabilities 794 1,105 1,899
Lease liabilities - 1,891 1,891
Current tax liability 154 18 172
Deferred tax liability (net) 510 763 1,273
Borrowings 161 658(1) 819
Provisions 178 746 924
2,101 7,212 9,313
Total identifiable net assets/(liabilities) at fair value 2,554 (750) 1,804
Goodwill arising on acquisition 5,643 9,016 14,659
Fair value of consideration 8,197 8,266 16,463
(1) The acquired borrowings of £658k were repaid in 2023.
The acquired lease liabilities were measured using the present value of the
remaining lease payments as at the date of acquisition. The right-of-use
assets were measured at an amount equal to the lease liabilities, less any
acquisition related adjustments.
The net deferred tax liabilities mainly comprise the tax effect of the
accelerated amortisation for tax purposes of the acquired intangible assets
recognised on acquisition offset by the deferred tax asset recognised on the
acquired net contract liabilities.
Purchase consideration
Atkinson
McLeod Ludlow Total
£'000 Thompson £'000
£'000
Amount settled in cash 7,457 6,312 13,769
Deferred/contingent cash consideration 740 1,954 2,694
Fair value of consideration 8,197 8,266 16,463
Purchase consideration settled in cash was £13.8 million, with £7.5 million
paid in March 2023 and £6.3m paid in November 2023 for Atkinson McLeod and
Ludlow Thompson respectively. Consideration paid in the period, net of cash
acquired, was £12.5 million and is included in cash flows from investing
activities.
As part of the purchase agreement with the previous owners of both Atkinson
McLeod and Ludlow Thompson, £0.9 million of deferred consideration will be
payable 12 months after the acquisition date. An estimated £1.8 million of
contingent cash consideration will be payable 12 months after the acquisition
date subject to certain performance targets being met. This
deferred/contingent consideration of £2.7 million is included within trade
and other payables.
Prior period acquisitions
As disclosed in Note 13 of the 2022 Annual Report and Accounts, the Group
completed the acquisition of IMM Properties Limited and its subsidiary IMM
Properties Investment Limited, trading under the name Gordon & Co,
(collectively 'Gordon & Co') and Stones Residential Holdings Limited and
its subsidiary Stones Residential (Stanmore) Limited (collectively 'Stones
Residential'). Deferred consideration of £1.5 million was paid in the year.
Analysis of cash flows on acquisition
2023 2022
£'000 £'000
Cash consideration (13,769) (8,221)
Cash acquired in subsidiaries 1,306 231
Current year acquisitions of subsidiaries, net of cash acquired (12,463) (7,990)
Deferred consideration paid in relation to prior year acquisitions (1,472) (500)
Acquisitions of subsidiaries, net of cash acquired (included in cash flows (13,935) (8,490)
from investing activities)
Transaction costs of the acquisition (included in cash flows from operating (285) (301)
activities) (1)
Net cash flow on acquisitions (14,220) (8,791)
1 Included in the £0.4m of transaction costs presented within adjusted
items set out in Note 3.
10. bORROWINGS
2023 2022
£'000 £'000
Current:
Revolving credit facility 11,769 -
Freehold mortgage 40 -
Transaction costs (127) -
Total borrowings due within one year 11,682 -
Non-current:
Freehold mortgage 98 -
Total borrowings due in more than one year 98 -
Total borrowings 11,780 -
During the year, the Company entered into a new revolving credit facility
(RCF) for a period of three years from June 2023 to June 2026 with the option
of extending for up to two additional years. The RCF of £20 million attracts
a margin of 1.65% above SONIA and is unsecured.
The RCF is subject to a leverage covenant (net debt to EBITDA not to exceed
1.75) and an interest cover covenant (interest to EBITDA not to be less than
4) as defined in the facility agreement. Both covenants are calculated using
pre-IFRS 16 accounting principles. The Group has been in compliance with
covenants throughout the period and at 31 December 2023 the leverage covenant
was 0.4x and the interest cover was 59x.
11. Share Capital
2023 2022
£'000
£'000
Authorised, allotted, issued and fully paid:
Ordinary shares of £0.01 each
At 1 January and 31 December 3,301 3,301
As at 31 December 2023 the Company had 330,097,758 ordinary shares (2022:
330,097,758).
12. Merger reserve and other reserves
2023 2022
£'000
£'000
Merger reserve 20,568 20,568
Capital redemption reserve 71 71
Other capital reserve 2,582 2,582
23,221 23,221
During the period, there were no movements in either the merger reserve,
capital redemption or other capital reserve.
13. OWN SHARES RESERVE
2023 2022
£'000
£'000
Balance at 1 January 10,993 6,059
Acquired during the year 1,112 4,941
Utilised during the year (13) (7)
Balance at 31 December 12,092 10,993
The own shares reserve represents the cost of shares in the Company purchased
in the market and held by either the Company or the Foxtons Group Employee
Benefit Trust to satisfy awards under the Group's long-term share incentive
schemes. The number of ordinary shares held by the Employee Benefit Trust at
31 December 2023 was 57,467 (2022: 88,247).
During the year 2,847,821 (2022: 14,829,261) shares with a total value of
£1.1 million (2022: £4.9 million) have been repurchased by the Company
through two share buyback programmes and are held in treasury at 31 December.
The number of ordinary shares held by the Company at 31 December 2023 was
28,802,778 (2022: 25,940,609).
14. RELATED PARTY TRANSACTIONS
Balances and transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and, in accordance with
IAS 24, are not disclosed in this note.
Remuneration of key management personnel
The remuneration of the key management personnel of the Group is set out below
in aggregate for each of the categories specified in IAS 24: 'Related Party
Disclosures'. The definition of key management personnel extends to the
Directors of the Company.
2023 2022
£'000
£'000
Short-term employee benefits 2,021 1,946
Post-employment benefits 21 40
Share-based payments 878 210
2,920 2,196
Other transactions
On 11 February 2022, the D&G Sales business was disposed of through the
sale of the entire share capital of Douglas & Gordon Limited and Douglas
& Gordon (2) Limited, to Lochlan Holdings Limited, a company owned by the
CEO of Douglas & Gordon Limited, for nominal consideration of £2. This
transaction was a related party transaction due to both the CEO and Lochlan
Holdings Limited constituting related parties.
15. Client monies
At 31 December 2023, client monies held within the Group in approved bank
accounts amounted to £122.4 million (31 December 2022: £112.4 million).
Neither this amount, nor the matching liabilities to the clients concerned,
are included in the consolidated statement of financial position since these
funds belong to clients. Foxtons Limited's terms and conditions provide that
any interest income received on these deposits accrues to the Company.
Client funds are protected by the FSCS under which the government guarantees
amounts up to £85,000 each. This guarantee applies to each individual client
deposit, not the sum total on deposit.
16. 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.
The Group's APMs are aligned to the Group's strategy and together are used to
measure the performance of the business with certain APMs forming the basis of
remuneration performance measures. Adjusted results exclude certain items,
because if included, these could distort the understanding of our performance
for the period and the comparability between periods. The definition, purpose
and how the measures are reconciled to statutory measures are set out below.
Additional APMs have been disclosed in the 2023 financial statements, along
with a comparator, in order provide readers with additional information beyond
statutory disclosures to provide increased visibility of underlying results
excluding one-off items. The additional measures, which are defined in the
section below, are as follows:
· Adjusted EBITDA and EBITDA margin (item (b) below)
· Adjusted profit before tax (item (d) below)
a) 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 continuing operations
revenue and contribution is presented below.
31 December 2023 Lettings Sales Financial services Consolidated
£'000 £'000 £'000 £'000
Revenue 101,188 37,158 8,781 147,127
Less: Direct operating costs (25,807) (22,703) (5,371) (53,881)
Contribution 75,381 14,455 3,410 93,246
Contribution margin 74.5% 38.9% 38.8% 63.4%
31 December 2022 Lettings Sales Financial services Consolidated
£'000 £'000 £'000 £'000
Revenue 86,918 43,182 10,222 140,322
Less: Direct operating costs (22,130) (21,142) (5,739) (49,011)
Contribution 64,788 22,040 4,483 91,311
Contribution margin 74.5% 51.0% 43.9% 65.1%
b) Adjusted EBITDA and adjusted EBITDA margin
Adjusted EBITDA represents the profit before tax before finance income,
non-IFRS 16 finance costs, other gains/(losses), depreciation of property,
plant and equipment (but after IFRS 16 depreciation), amortisation,
share-based payment charges and adjusted items. Since the measure includes
IFRS 16 lease depreciation and IFRS 16 lease finance cost, adjusted EBITDA
includes all elements of the Group's leasing costs and therefore fully
reflects the Group's lease cost base. Adjusted EBITDA margin is defined as
adjusted EBITDA divided by revenue. These measures are frequently used by
investors, securities analysts and other interested parties to evaluate
financial performance and compare performance of sector peers. Furthermore,
adjusted EBITDA is used to calculate the leverage and interest cover ratios
for the purposes of the Group's RCF covenants. A reconciliation between
continuing operations operating profit and adjusted EBITDA is presented below.
Notes 2023 2022
£'000
£'000
Operating profit 9,790 13,840
Add back: adjusted items 3 4,466 69
Adjusted operating profit 14,256 13,909
Add back: Amortisation of non-acquired intangibles 7 395 510
Add back: Amortisation of acquired intangibles 7 1,396 1,041
Add back: Depreciation of property, plant and equipment(1) 2,399 2,063
Add back: Share-based payment charges(2) 1,036 931
Deduct: Interest on IFRS 16 leases(3) 8 (1,971) (1,965)
Adjusted EBITDA 17,511 16,489
Adjusted EBITDA margin 11.9% 11.8%
(1) Depreciation of IFRS 16 right-of-use assets is not added back so that
adjusted EBITDA includes the non-financing element of property and vehicle
leases.
(2) Only underlying share-based payment charges are included in the
reconciliation. In 2022 the Group's total net share-based payment charge
consisted of £0.6 million of adjusted item credits and £0.9 million of
underlying charges.
(3) Interest on IFRS 16 leases is deducted so that adjusted EBITDA includes
the financing cost of property and vehicle leases.
c) Adjusted operating profit and adjusted operating
profit margin
Adjusted operating profit represents the profit before tax for the period
before finance income, finance cost, other gains/(losses) and adjusted items
(defined within Note 2). This measure is reported to the Board for the purpose
of resource allocation and assessment of segment performance. The closest
equivalent IFRS measure to adjusted operating profit is profit before tax.
Adjusted operating profit margin is defined as adjusted operating profit
divided by revenue. This APM 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 a reconciliation between profit before tax and adjusted
operating profit and for the inputs used to derive adjusted operating profit
margin.
d) Adjusted profit before tax
Adjusted profit before tax represents profit before tax before adjusted items
and provides a view of the underlying profit before tax and aids comparability
of performance from one period to another. A reconciliation between profit
before tax and adjusted profit before tax is presented below.
Notes 2023 2022
£'000
£'000
Profit before tax 7,894 11,939
Add back: adjusted items 3 4,466 69
Adjusted profit before tax 12,360 12,008
e) Adjusted earnings per share
Adjusted earnings per share is defined as earnings per share excluding
adjusted items.
The measure is derived by dividing profit after tax, adjusted for post-tax
adjusted items, by the weighted average number of ordinary shares in issue
during the financial period, excluding own shares held. This APM is a measure
of management's view of the Group's underlying earnings per share.
The closest equivalent IFRS measure is earnings per share. Refer to Note 6 for
a reconciliation between earnings per share and adjusted earnings per share.
f) 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 used in investing
activities, excluding the acquisition of subsidiaries (net of any cash
acquired), divestments and purchase of investments. This measure is used to
monitor cash generation. A reconciliation between net cash from operating
activities and net free cash flow is presented below.
2023 2022
£'000
£'000
Net cash from operating activities 15,672 23,932
Less: Repayment of IFRS 16 lease liabilities (12,525) (12,686)
Net cash from operating activities, after repayment of IFRS 16 lease 3,147 11,246
liabilities
Investing activities
Interest received 381 137
Proceeds on disposal of property, plant and equipment - 53
Purchases of property, plant and equipment (2,121) (2,953)
Purchases of intangibles (1,495) (755)
Net cash used in investing activities (3,235) (3,518)
Net free cash flow (88) 7,728
g) Net (debt)/cash
Net debt/cash is defined as cash and cash equivalents less external borrowings
and excludes IFRS 16 lease liabilities. The measure is monitored internally
for the purposes of assessing the availability of capital and balance sheet
strength. A reconciliation of the measure is presented below.
2023 2022
£'000
£'000
Cash and cash equivalents 4,989 12,027
External borrowings (11,780) -
Net (debt)/cash (6,791) 12,027
h) Other performance measure definitions
Definitions of other performance measures presented in the Group's Annual
Report and Accounts are summarised below.
Volumes
· Sales volumes: Total number of property sales transactions which have
exchanged during the period.
· Lettings volumes: Total of the number of long and short lets entered
into by tenants and the number of renewals agreed between tenants and
landlords during the period.
· Financial Services volumes: Total number of mortgages arranged during
the period (purchase and refinance units).
Revenue per transaction
· Revenue per Sales transaction: Sales revenue during the period
divided by Sales volumes during the period.
· Revenue per Lettings transaction: Lettings revenue during the period
divided Lettings volumes during the period.
· Revenue per Financial Services transaction: Financial Services
revenue during the period divided by Financial Services volumes during the
period.
17. Events after the reporting period
There are no post balance sheet events to report.
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