REG - Foxtons Group PLC - Interim Results
27/07/2023 07:15
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RNS Number : 3304H Foxtons Group PLC 27 July 2023
Foxtons Group plc
INTERIM RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2023
27 July 2023
Operational turnaround on track; significant market share gains delivered,
together with revenue and profit growth in a challenging market.
Commenting on today's announcement, Guy Gittins, Group Chief Executive said:
"Our continued focus on growing non-cyclical and recurring revenues is working
and has enabled us to deliver strong revenue and profit growth despite a
challenging sales market and investing in recruiting more fee earners.
"In the first half of the year we cemented our position as London's largest
Lettings and Sales estate agency brand. We not only had the largest market
share of instruction volumes in London, but we also grew instruction market
share quicker than any of our competitors as recently implemented operational
upgrades yielded significant gains.
"Our Lettings business continued its growth trajectory, with double digit
organic growth delivered in a competitive market. In Sales, although revenues
were down due to the September 2022 mini-budget, which impacted the
under-offer pipeline at the start of the year, we significantly grew market
share, rebuilt the pipeline at the fastest rate in the last 5 years and agreed
a similar level of new sales as last year, despite challenging market
conditions.
"Looking ahead, despite the uncertainty in the sales market, our resilient and
growing Lettings business combined with continuing Sales market share gains
and a strengthened sales culture, means we are well positioned for the rest of
the year."
H1 2023 H1 2022 Change
Continuing operations(1):
Revenue £70.9m £65.1m +9%
Adjusted operating profit(2) £6.8m £6.2m +10%
Profit before tax £6.1m £4.3m +42%
Adjusted earnings per share (basic)(3) 1.4p 1.1p +27%
Earnings per share (basic) 1.4p 0.9p +56%
Total Group(4):
Net free cash flow(5) (£4.3m) £2.8m n/a
Interim dividend per share 0.20p 0.20p -
Operational highlights:
· Largest Lettings and Sales estate agency brand in London(6).
· Delivered significant instruction market share growth vs H1 2022(7).
· 14% growth in organic Lettings revenue vs H1 2022, supported by an
increase in the cross-sell of property management services (+21%) and securing
longer tenancies.
· 33% increase in new Sales agreed market share; 15% increase in Sales
exchange market share vs H1 2022(8).
· 29% growth in Financial Services refinance volumes vs H1 2022.
Financial highlights:
· Revenue up 9% to £70.9m; adjusted operating profit up 10% to £6.8m.
73% of revenue from non-cyclical, recurring activities. Strong Lettings growth
more than offset the expected reduction in H1 Sales volumes.
· Lettings revenue up 26% to £49.8m, including £5.6m (+14%) of organic
growth and £2.7m of incremental contribution from acquisitions. Operational
upgrades delivered market share gains and higher average revenue per
transaction.
· Atkinson McLeod (acquired March 2023) fully integrated and synergies
being realised. Prior acquisitions trading well and delivering returns in line
with expectations.
· Sales revenue down 19% to £16.9m due to expected lower exchange
volumes, reflecting a lower under-offer pipeline at the start of the year,
partly mitigated by market share growth.
· Financial Services revenue down 12% to £4.2m as higher refinance
volumes were offset by lower new purchase transaction volumes and smaller loan
sizes.
· Adjusted operating profit up 10% to £6.8m with Lettings operating
profit growth more than offsetting a Sales operating loss, including the cost
of increasing fee earner headcount.
· Net free cash outflow of £4.3m (2022: £2.8m inflow). Net debt of
£2.1m at 30 June 2023 (31 December 2022: net cash £12.0m). This reflects
£6.3m of acquisition spend, £9.0m working capital outflow due to the
introduction of shorter landlord billing periods to improve competitiveness
and portfolio retention, and £3.2m of shareholder returns. Working capital
flows are expected to normalise across 2024.
· RCF refinanced with existing lender. Committed facility increased to
£20m (from £5m) and extended to June 2026. Provides increased strategic
flexibility including working capital support for organic Lettings growth and
the Lettings portfolio acquisition strategy.
· Unchanged interim dividend of 0.20p per share in line with dividend
policy.
· Making good progress towards medium-term ambition to deliver
£25m-£30m of operating profit.
Implementing operational upgrades and progressing against strategic
priorities:
· Data accessibility and usage: KPI reporting suite upgraded to improve
data visibility and new algorithms implemented across the Group to better
identify new lead opportunities. New data platform implementation well
progressed and expected to be operational in H2.
· Estate agency processes and culture: Overhauling our internal culture
has significantly improved cross-sell of Lettings property management services
and Financial Services ancillary products. Process improvements delivered a
40% reduction in the time to complete a lettings transaction and a 20% shorter
time to complete a sales transaction than the industry average. New end-to-end
digital lettings platform developed in the half and delivery in H2 is expected
to drive further Lettings growth.
· Headcount capacity and experience: 13% increase in fee earning
headcount drove record levels of sales viewings. 16% improvement in retention
rates boosts salesforce tenure, experience and productivity.
· Brand visibility and customer proposition: Appointed an experienced
marketing director to upgrade our marketing, increase brand visibility and
articulate the value of the Foxtons proposition to customers.
Current trading and outlook:
Trading since the end of the first half is in line with our expectations:
· Lettings revenue in July 2023 performing in line with H1 2023
trends and delivering growth.
· Sales volumes in July were ahead of the H1 2023 run-rate as deals
in our under-offer pipeline exchanged. However, new buyer enquiries softened
in July in reaction to mortgage rate rises.
Looking ahead to the remainder of the year:
· In Lettings, operational improvements will continue to drive revenue
and market share growth. Little change expected to the ongoing supply and
demand imbalance, which will continue to underpin rents. Rent increases are
expected to moderate through H2.
· In Sales, we are exchanging deals in our under-offer pipeline, and
consequently expect our Q3 exchanges to outpace the levels seen in H1 2023.
The wider sales market continues to remain challenging, primarily driven by
higher inflation levels and associated interest rates, which will continue to
impact market exchange volumes through H2 2023. However, should inflation
moderate, buyer demand may rebound strongly, underpinned by ongoing demand for
London residential property.
· In Financial Services, refinancing is expected to remain resilient
while purchase mortgage volumes will track the sales market.
· Our large portfolio of non-cyclical and recurring revenues,
combined with revenue and market share growth driven by the operational
improvements we continue to deliver at pace, will limit the impact of a weaker
sales market and protect Group profitability to a far larger extent than in
previous years.
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)
Tom Allison / William Baldwin-Charles / +44 7789 998 020 / +44 7834 524 833 /
Olivia Rosser
+ 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
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The presentation will also be broadcast via conference call. To access you
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(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) 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 for a reconciliation of the measure to statutory measures.
(3) Adjusted earnings per share is defined as earnings per share excluding the
impact of adjusted items and any significant remeasurements of deferred tax
balances as a result of UK corporate tax rate changes. Refer to Note 7 for a
reconciliation between earnings/(loss) per share and adjusted earnings per
share.
(4) Total Group includes results from both continuing operations and
discontinued operations. Refer to Note 5 for details of the results from
discontinued operations.
(5) 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.
(6) By instruction volumes. Source: TwentyCi
(7) New property instruction market share growth in Foxtons core addressable
markets. Source: TwentyCi
(8) Share of exchanges (H1 2023: 3.8%; H1 2022: 3.3%) and new sales agreed
in Foxtons core addressable markets. Source: TwentyCi
( )
About Foxtons
Founded in 1981, Foxtons is London's leading estate agency and largest
lettings agent, with a portfolio of over 27,000 tenancies. The Group operates
from a network of over 60 interconnected branches, offering a range of
residential property services across three business segments: Lettings, Sales
and Financial Services.
The Group's strategy to accelerate growth is focused on non-cyclical and
recurring revenues from Lettings and Financial Services refinance activities,
supplemented by market share growth in Sales. In order to drive organic
growth, the Group is rebuilding its competitive advantages, with a strong
focus on leveraging data and technology; investing in people and culture; and
reinvigorating the Foxtons brand.
By rebuilding Foxtons' estate agency DNA and returning the business to its
position as London's go-to estate agent, the Group aims deliver significant
profit growth and deliver value for shareholders.
· Lettings organic growth: Focus on winning new property instructions,
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,
improving productivity and cross-sell to drive revenue growth.
PERFORMANCE AT A
GLANCE
Half year ended 30 June 2023 2022 Change
Income statement (from continuing operations(1))
Revenue £70.9m £65.1m +9%
Operating profit £6.8m £5.3m +28%
Adjusted operating profit(2) £6.8m £6.2m +10%
Adjusted operating profit margin(2) 9.6% 9.5% +11 bps
Profit before tax £6.1m £4.3m +42%
Earnings per share (from continuing operations(1))
Basic earnings per share 1.4p 0.9p +56%
Adjusted basic earnings per share(2) 1.4p 1.1p +27%
Dividends
Interim dividend per share 0.20p 0.20p -
Net cash and net free cash flow
Net (debt)/cash(2) (£2.1m) £11.6m n/a
Net cash from operating activities(3) £3.2m £9.6m (67%)
Net free cash flow(2,3) (£4.3m) £2.8m n/a
Segmental metrics (from continuing operations(1))
Lettings revenue £49.8m £39.4m +26%
Lettings volumes 9,361 9,110 +3%
Average revenue per Lettings transaction £5,316 £4,330 +23%
Sales revenue £16.9m £20.8m (19%)
Sales volumes 1,293 1,528 (15%)
Average revenue per Sales transaction £13,084 £13,627 (4%)
Financial Services revenue £4.2m £4.8m (12%)
Financial Services volumes 2,411 2,334 +3%
Average revenue per Financial Services transaction £1,755 £2,056 (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 15.
(3) Net cash from operating activities and net free cash flow includes
continuing and discontinued operations.
CHAIRMAN'S STATEMENT
We have experienced a positive start to the year, following the significant
changes Foxtons underwent in 2022. Our Chief Executive, Guy Gittins, started
in September last year and launched a review of the business which resulted in
him identifying a number of operational improvements that needed to be made to
rebuild Foxtons' competitive advantage. These operational improvements are a
major focus for the business and are being delivered at speed. While there
remains significant work to do to fulfil the business' potential, I am
extremely encouraged by the progress the new management team has made in such
a short period.
At the same time as implementing the operational improvements we have
refocused our strategic priorities, with an emphasis on non-cyclical and
recurring revenue streams. In March, Guy set out a number of ambitions for the
business to achieve in the medium-term. At a Group level, we aim to deliver
£25m-£30m of operating profit, underpinned by: 3%-5% average organic growth
in the Lettings business as well as attractive returns from acquisitions; by
increasing market share to 4.5% in Sales; and achieving revenue growth of
7%-10% in Financial Services.
Our Lettings business delivered another six months of strong performance,
which highlights the strength of non-cyclical revenue streams and the
resilience they provide the business. While both the Sales and Financial
Services businesses recorded lower revenues, this was due to external factors
and masks the fact that we have outperformed the market. Despite the
challenging sales market and the additional costs incurred through investing
in fee earner headcount, we grew both our revenues and profits in the half.
Financials
Revenue increased by 9% to £70.9m, driven largely by Lettings which
contributed £49.8m, an increase of 26%. Adjusted operating profit increased
by 10% to £6.8m and profit before tax increased by 42% to £6.1m.
Within Lettings, we introduced shorter landlord billing periods to improve the
competitiveness of our Lettings proposition and support the retention and
organic growth of the portfolio over the medium-term. As Lettings revenue
outpaced cash collections, a working capital outflow resulted in a net debt
position of £2.1m at the period end. Working capital flows are expected to
normalise across 2024.
In June we refinanced our revolving credit facility, which now provides £20m
of committed borrowing capacity, up from £5m. The facility will provide
increased strategic flexibility, including further working capital support to
drive organic Lettings growth and delivery against the Lettings portfolio
acquisition strategy.
The Board has declared an interim dividend of 0.2p per share, under our policy
of returning 35% to 40% of profit after tax in ordinary dividends. The Board
will continue to keep share buybacks under review in the context of other
potential uses of capital.
Outlook
The business has made good progress in a short period of time. The operational
turnaround is already starting to show results and Group earnings are
underpinned by high levels of recurring revenues. Whilst the near term outlook
for the sales market remains challenging, we are making good progress towards
our medium-term growth ambitions.
Nigel Rich CBE
Chairman
26 July 2023
CHIEF EXECUTIVE'S REVIEW
The business performed well in challenging markets, primarily due to our
resilient Lettings business delivering good growth, and we took significant
steps to implement the critical operational improvements required for Foxtons
to be London's go-to estate agent.
In the half we cemented our position as London's largest Lettings and Sales
agency brand. We not only have the largest market share of instruction volumes
in London, but we also grew instruction market share quicker than any of our
competitors as operational upgrades yielded significant gains. Property
instructions are the lifeblood of estate agency and growth here supported the
delivery of higher organic revenues in Lettings. In Sales, higher
instruction levels drove record buyer demand and supported a significant
increase in our market share of sales exchanges and new sales agreed. However,
due to a lower under-offer pipeline at the start of the year, and significant
increases in mortgage rates, these improvements will take time to be reflected
in revenue.
We still have work to do to turn Foxtons into the force it can be, but we are
making good progress towards our ambition to deliver £25m-£30m of operating
profit in the medium-term.
Financial highlights
Revenue for the half was up 9% to £70.9m, adjusted operating profit was up
10% at £6.8m and profit before tax was up 42% at £6.1m.
In Lettings, revenue was up 26% to £49.8m, with 14% organic growth
underpinned by operational improvements supporting the delivery of both market
share gains and higher average revenue per transaction as the business focused
on improving deal conversion rates, securing longer tenancy terms, and
improving property management cross-sell, alongside higher rents. The Atkinson
McLeod acquisition, announced on 6 March 2023, is fully integrated and we are
seeing the benefits of operational and financial synergies.
As we have previously noted, the mini-budget in September last year severely
disrupted the sales market, and when combined with rising mortgage rates in
the half, revenues were down 19% to £16.9m. The decrease in revenue was
partly mitigated as the business outperformed the wider market and delivered
growth in the share of exchanged deals in H1. Significant growth in our share
of new sales agreed in H1 meant we were able to rebuild our under-offer
pipeline at the fastest rate in the last 5 years as we agreed a similar level
of sales in the period versus the prior year.
Financial Services revenue was down marginally at £4.2m, as the decline in
the sales market and rising interest rates affected the number of purchase
volumes, partly mitigated by growth in refinancing volumes supported by
additional adviser headcount.
Net debt at the period end was £2.1m, with the net debt position reflecting a
working capital outflow as we introduce shorter landlord billing periods to
improve the competitiveness of our Lettings proposition and support the
retention and organic growth of the portfolio over the medium-term.
Lettings market update
Demand in Lettings remains strong and rents continued to rise in the first
half, as supply remains constrained, although the rate of rent increases
moderated as the half progressed.
The continued growth in the imbalance between supply and demand is at the
highest levels we have ever seen. This continues to drive rents and is making
it more difficult for renters to find affordable accommodation in London. We
have written to the Secretary of State for the Department of Levelling Up,
Housing & Communities highlighting the challenges private landlords face
and how this will negatively impact renters, alongside suggesting ways of
addressing the supply side issue. This is an increasingly serious issue and we
will continue to seek ways to engage with the Government to help ensure London
has a sustainable rental market.
Sales market update
We have highlighted the impact of the mini-budget on a number of occasions,
and so the H1 slow-down in Sales exchange volumes was not a surprise. The
combination of higher mortgage costs, the inflation driven cost of living
issue, and the withdrawal of Help to Buy on new homes all combined to cause a
drag on the sales market. Looking at new sales agreed in the first six months,
the market remained challenging with new sales agreed volumes down c.19%
versus the prior year. More positively, demand for London property remains
robust and there is still a tail of Covid pent-up demand from changing
lifestyles affecting property requirements.
The operational upgrades we have implemented meant Foxtons was able to
capitalise on these conditions and outperform the market.
Operational turnaround on track
In March 2022, we identified key operational upgrades needed to rebuild our
competitive advantages in four core areas: data accessibility and usage;
estate agency processes and culture; headcount capacity and experience; and
brand visibility and customer proposition.
Data accessibility and usage
We have the largest data set on London properties, in both sales and lettings,
but we have not been making it work to our advantage. We have made significant
progress in overhauling our data architecture so that we can become a data-led
company. As part of the overhaul, we have introduced a new KPI reporting suite
to significantly improve data visibility and embed a high-performance culture
through managing our employees against new KPI measures. In addition, we have
introduced new algorithms to better identify and convert new leads from our
unrivalled database.
Estate agency processes and culture
We are also rebuilding the estate agency culture and investing in our talented
workforce. We have made good progress here, through re-empowering our agents
and reinstating and significantly enhancing our industry leading training
programme. In the half our Learning and Development team delivered over 1,100
hours of in-person training to our workforce, a tenfold increase in the
training time invested in H1 2022. This training enables our new recruits to
be productive more quickly and supports the enhanced culture we are embedding
across the Group.
And these changes to culture are already driving behavioural changes. The
salesforce significantly enhanced its self-generation of property instruction
opportunities, supporting an 8% Lettings and 43% Sales instruction market
share growth in H1 versus the prior year. Moreover, better employee management
and incentivisation delivered a 21% increase in cross-selling of our higher
value Lettings property management service and good growth in the cross-sell
of ancillary products in Financial Services.
Finally, we have made significant progress on overhauling our estate agency
processes, aided by our in-house operating system and development teams. In
the half we delivered a 40% reduction in the time to complete a lettings
transaction and a 20% shorter time to complete a sales transaction than the
industry average.
Innovation is a key element in Foxtons' DNA, and we have spent much time
identifying and developing new functionalities to modernise the lettings
process for landlords and tenants. We are well progressed with the delivery of
a new digital end-to-end rental solution, which is an industry first, and I
look forward to providing an update later in the year. While we remain one of
the most technologically advanced agents in the market, we are yet to fully
exploit our rich data sets and technology capability; we believe this
represents untapped value and will allow us to be a leader in embracing new
technologies, such as AI.
Headcount capacity and experience
Following my operational review, it was clear that the Company was
under-resourced in fee earning headcount, and so was unable to take advantage
of all available market opportunities. Addressing this was a key priority. We
have increased headcount by 16% across Lettings and Sales fee earners and
increased Financial Services adviser headcount by 21%. Typically, there is a
12-month lag between hiring a new fee earner or financial adviser and seeing
the benefits come through. Encouragingly, the additional resource is already
delivering growth with a record number of Sales viewings completed in H1 2023
and growth in refinancing volumes within Financial Services.
Another area of focus was reducing the unacceptably high levels of staff
attrition. Overall staff retention rates increased by 16% in H1, which boosts
staff tenure, experience and productivity, with consequential benefit to
profit.
Brand visibility and customer proposition
Finally, we are reinvigorating our brand - at the end of last year we
reintroduced the iconic Foxtons-branded Minis, and we have now appointed a new
marketing director, to focus on growing our market share by overhauling our
approach to marketing.
I have been very encouraged by the reaction of my colleagues to these changes
we are implementing. They have embraced them and that is beginning to feed
through into our operational and financial results. We have good quality
people across the organisation with deep experience of our industry which is
critical for our future growth.
Delivering our strategic priorities
We have a focused set of strategic priorities to deliver revenue and profit
growth and meet our medium-term operating profit ambition. Emphasis is on
growing non-cyclical and recurring revenue streams in Lettings and Financial
Services to enhance the Group's earnings resilience, alongside returning Sales
to profitability in the longer term.
In March, we set medium-term targets that will demonstrate our success in
delivering these strategic priorities. Although we are only six months into a
multi-year programme, we are making good progress:
· Organic Lettings growth: achieved 14% organic revenue growth in the
half, against our ambition of 3%-5%.
· Lettings acquisitions growth: completed the acquisition of Atkinson
McLeod in March 2023, rapidly integrating it into the Foxtons infrastructure
to deliver synergies. Prior acquisitions are trading well and delivering in
line with our expectations of 20%+ returns on capital.
· Sales market share growth: delivered 15% growth in H1 to grow market
share to 3.8% (H1 2022: 3.3%) as we progress delivery against our medium-term
ambition of 4.5% market share in our core markets. In addition, delivered 33%
growth in market share of new sales agreed over the period to support the
significant rebuild in the under-offer pipeline in the half.
· Financial Services growth: increased headcount and operational upgrades
delivered a 29% increase in refinance volumes and higher levels of ancillary
product cross-sell to mostly mitigate the challenging market. We are building
well to deliver on our ambition of 7%-10% revenue growth.
Current trading and outlook
Trading since the end of the first half is in line with our expectations. July
2023 Lettings revenue is performing in line with the trends seen H1 2023, and
we continue to deliver strong organic growth. Sales volumes in July were ahead
of the H1 2023 run-rate as we exchanged deals in our under-offer pipeline.
However, new buyer enquiries softened in July reflecting challenges in the
mortgage market.
Looking ahead to the remainder of the year, in Lettings, the operational
improvements implemented will continue to drive revenue and market share
growth. We see little change to the supply and demand imbalance which will
continue to underpin rents, but we do expect rent increases to moderate
through H2.
In Sales, we are exchanging deals in our under-offer pipeline, and
consequently expect our Q3 exchanges to outpace the levels seen in H1 2023.
The wider sales market continues to remain challenging, primarily driven by
higher inflation levels and associated interest rates, which will continue to
impact market exchange volumes through H2 2023. Continuing to win market share
should mitigate some of these market headwinds. However, should inflation
moderate, buyer demand may rebound strongly, underpinned by ongoing demand for
London residential property.
And finally in Financial Services, we expect mortgage refinancing to remain
resilient while new mortgage volumes will track the sales market.
In summary, our large portfolio of non-cyclical and recurring revenues,
combined with revenue and market share growth driven by the operational
improvements we continue to implement at pace, will limit the impact of a
weaker sales market and protect Group profitability to a far larger extent
than in previous years.
Guy Gittins
Chief Executive Officer
26 July 2023
Financial review
H1 2023 H1 2022 Change
£m £m
Revenue 70.9 65.1 +9%
Contribution(1) 44.5 41.9 +6%
Contribution margin(1) 62.7% 64.3% (160 bps)
Operating profit 6.8 5.3 +28%
Adjusted operating profit(1) 6.8 6.2 +10%
Adjusted operating profit margin(1) 9.6% 9.5% +11 bps
Profit before tax 6.1 4.3 +42%
Profit after tax 4.1 2.9 +41%
Adjusted earnings per share (basic) 1.4p 1.1p +27%
Earnings per share (basic) 1.4p 0.9p +56%
Net free cash flow and net cash
Net free cash flow(1,2) (4.3) 2.8 n/a
(Net debt)/Net cash as at 30 June(1) (2.1) 11.6 n/a
Dividends
Interim dividend per share 0.20p 0.20p -
Financial overview - highlights
1 APMs are defined, purpose explained and reconciled to statutory measures
within Note 2 of the financial statements.
2 Net free cash flow is from continuing and discontinued operations.
Notes:
- All results and measures within the financial review are presented on a
continuing operations basis unless otherwise stated.
- Values in tables may have been rounded and totals may therefore not be the
sum of presented values in all instances.
Revenue increased by 9% to £70.9m (2022: £65.1m), with Lettings revenue up
26%, Sales revenue down 19% and Financial Services revenue down 12%. Adjusted
operating profit increased by £0.6m to £6.8m (2022: £6.2m), underpinned by
good growth in Lettings profitability. Profit before tax was £6.1m (2022:
£4.3m) and profit after tax was £4.1m (2022: £2.9m).
Net free cash outflow of £4.3m (2022: £2.8m inflow). At 30 June 2023, the
net debt position of £2.1m (31 December 2022: £12.0m net cash) reflected
£6.3m of acquisition spend, a £9.0m working capital outflow and £3.2m of
shareholder returns.
The working capital outflow was driven by the introduction of shorter billing
periods for landlords opting to agree to longer tenancy terms. This 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 the affected tenancies.
With Lettings revenue recognition outpacing cash collections, the H1 working
capital outflow increased to £9.0m (2022: £2.1m outflow). This billing
initiative improves the competitiveness of our Lettings proposition for
landlords and supports the retention and organic growth of the Lettings
portfolio over the medium-term.
In June, the Group's revolving credit facility (RCF) was refinanced,
increasing the size of the committed facility from £5m to £20m and extending
the facility to June 2026. At 30 June 2023, £5m of the RCF was drawn. The new
facility provides increased strategic flexibility, including working capital
support to drive organic Lettings growth and delivery against the Lettings
portfolio acquisition strategy.
Revenue
H1 2023 H1 2022 Change
£m £m
Lettings 49.8 39.4 +26%
Sales 16.9 20.8 (19%)
Financial Services 4.2 4.8 (13%)
Total 70.9 65.1 +9%
The Group consists of three operating segments: Lettings, Sales and Financial
Services. In the period, Lettings represented 70% of total revenue (2022:
61%), Sales 24% of total revenue (2022: 32%) and Financial Services 6% of
total revenue (2022: 7%).
Lettings revenue
Lettings revenue increased by 26% to £49.8m (2022: £39.4m), reflecting a 23%
increase in average revenue per transaction and a 3% increase in transactional
volumes. Revenue growth included organic growth of £5.6m (year-on-year growth
of 14%), £2.7m incremental revenue contribution from acquisitions and £2.0m
growth in interest earned on client monies.
Organic revenue growth of 14% was driven by a number of key drivers,
including:
· An operational focus to secure longer tenancy terms, which under
the Lettings revenue recognition policy, resulted in a greater proportion of
revenue being recognised at the start of the affected tenancies.
· Continued focus on increasing the cross-sell of our higher value
property management service, increasing the penetration of new deals under
management by 21% year-on-year.
· 12% year-on-year increase in average rents, reflecting a rental
market where demand continues to outstrip supply driving competition for
rental properties.
The £2.7m of incremental inorganic revenue growth reflects the incremental
revenue from the two acquisitions completed in May 2022 and the March 2023
acquisition of Atkinson McLeod. In June 2023, the Atkinson McLeod lettings
portfolio was fully integrated into the Foxtons operating platform and branch
network. £0.1m of closure costs relating to the acquired branches have been
recognised as an adjusted item in the period (as noted further below).
Sales revenue
Sales revenue decreased by 19% to £16.9m (2022: £20.8m), with the decrease
mainly driven by a 15% decrease in Sales exchange volumes compared to H1 2022.
Average revenue per transaction was 4% lower reflecting a 2% decrease in the
average price of properties sold as sellers adjusted prices to match
prevailing market conditions, whilst commission rates remained robust at 2.2%.
The reduction in exchange volumes reflects a lower under-offer pipeline at the
start of the year, a consequence of reduced buyer activity following the
September 2022 mini-budget. Over the period, despite challenging market
conditions, significant progress has been made in rebuilding the under-offer
pipeline, with sales exchanges expected to accelerate in Q3.
Financial Services revenue
Financial Services revenue decreased by 12% to £4.2m (2022: £4.8m),
reflecting a 3% increase in volumes and a 15% decrease in average revenue per
transaction. Lower average revenue per transactions was driven by lower
average loan sizes, reduced new purchase volumes and an increase in lower
value product transfers within the refinance business.
Contribution and contribution margin
H1 2023 H1 2022
£m margin £m margin
Lettings 37.4 75.1% 28.9 73.4%
Sales 5.5 32.7% 10.9 52.2%
Financial Services 1.6 37.2% 2.1 42.8%
Total 44.5 62.7% 41.9 64.3%
Group contribution, defined as revenue less direct salary costs of front
office staff and bad debt charges, increased to £44.5m (2022: £41.9m).
Contribution margin for the period was 62.7% (2022: 64.3%). Lettings
contribution increased by 29%, reflecting 26% of revenue growth and the
inherent operating leverage in the business model. Contribution across both
Sales and Financial Services reduced due to a reduction in new purchase
volumes and additional costs through the investment in fee earner headcount.
Fee earner productivity was robust, with the respective pipelines of business
being rebuilt effectively over H1.
Adjusted operating profit/(LOSS) and adjusted operating profit/(LOSS) margin
H1 2023 H1 2022
£m margin £m Margin
Lettings 14.1 28.4% 7.3 18.4%
Sales (6.4) (37.6%) (0.7) (3.2%)
Financial Services 0.2 4.7% 0.8 17.1%
Corporate costs (1.2) n/a (1.2) n/a
Total 6.8 9.6% 6.2 9.5%
Adjusted operating profit for the period was £6.8m (2022: £6.2m) and
adjusted operating margin was 9.6% (2022: 9.5%).
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 £6.8m to £14.1m and
underpinned Group profitability. In contrast, Sales adjusted operating loss
increased by £5.7m to a loss of £6.4m, with the reduction due to the fall in
exchange volumes and investment in headcount as previously mentioned.
Adjusted operating profit of £6.8m (2022: £6.2m) is after charging £64.1m
(2022: £58.9m) of costs, including the following:
· Direct operating costs of £26.5m (2022: £23.2m) relating to
direct salary costs of front office staff and bad debt charges.
· Other operating costs, excluding £nil (2022: £0.9m) of adjusted
items, of £37.6m (2022: £35.7m), which includes the following charges:
- Depreciation of £6.4m (2022: £6.0m).
- Amortisation of £0.8m (2022: £0.7m), including £0.6m (2022:
£0.4m) relating to acquired intangibles.
- Share-based payment charges of £0.5m (2022: £0.6m).
· Adjusted items of net £nil (2022: £0.9m) comprise of: £0.1m
property related credits (2022: £0.1m), £0.1m transaction related costs
(2022: £0.2m) and £nil reorganisation costs (2022: £0.7m).
Profit before tax
H1 2023 H1 2022
£m £m
Adjusted operating profit 6.8 6.2
Less: adjusted items - (0.9)
Operating profit 6.8 5.3
Less: Net finance costs and other losses (0.8) (1.0)
Profit before tax 6.1 4.3
Profit before tax has increased by 42% to £6.1m (2022: £4.3m) after charging
£0.8m (2022: £1.0m) net of finance costs, primarily relating to IFRS 16
lease interest, and other losses.
profit after tax
H1 2023 H1 2022
£m £m
Profit before tax 6.1 4.3
Less: current tax charge (1.9) (0.7)
Less: deferred tax charge (other movements) - (0.7)
Profit after tax 4.1 2.9
The profit after tax of £4.1m (2022: £2.9m) is after a total tax charge of
£1.9m (2022: £1.4m), of which £nil (2022: £0.7m) relates to non-cash
deferred tax accounting charges and £1.9m (2022: £0.7m) relates to current
tax.
The effective tax rate for the period was 32.0% (2022: 32.4%), which compares
to the statutory corporation tax rate of 25% (2022: 19.0%). The 2023 effective
tax rate is higher than the statutory corporation tax rate due to
non-deductible expenses.
The Group's net deferred tax liability at 30 June 2023 totalled £26.1m (2022:
£26.1m), which includes £27.6m (2022: £27.2m) of deferred tax liabilities
relating to the Group's intangible assets, offset by deferred tax assets of
£1.6m (2022: £1.0m). The deferred tax assets relate to tax losses brought
forward which are expected to be recovered through future taxable profits.
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 compliant.
The Group does not have any complex tax structures in place and does not
engage in any aggressive tax planning or tax avoidance schemes. The Group
always sets out to be transparent, open and honest in its dealings with tax
authorities. The Group received £0.3m of tax refunds during the year (2022:
£nil).
Earnings per share
H1 2023 H1 2022
£m £m
Profit after tax 4.1 2.9
Add back: adjusted items (net of tax) 0.1 0.7
Adjusted earnings for the purposes of adjusted earnings per share 4.2 3.6
Weighted average number of ordinary shares for the purposes of basic earnings 302,815,955 317,888,904
per share
Weighted average number of ordinary shares for the purpose of diluted earnings 11,723,508 2,633,344
per share
Earnings per share (basic) 1.4p 0.9p
Earnings per share (diluted) 1.3p 0.9p
Adjusted earnings per share (basic) 1.4p 1.1p
Adjusted earnings per share (diluted) 1.3p 1.1p
Earnings per share (basic) was 1.4p (2022: 0.9p) and earnings per share
(diluted) was 1.3p (2022: 0.9p). On an adjusted basis, earnings per share
(basic) was 1.4p (2022: 1.1p) and earnings per share (diluted) was 1.3p (2022:
1.1p).
Net FREE cash flow and net cash
H1 2023 H1 2022
From continuing and discontinued operations £m £m
Operating cash flow before movements in working capital 13.3 11.8
Working capital outflow (9.0) (2.1)
Income taxes paid (1.1) (0.1)
Net cash from operating activities 3.2 9.6
Repayment of IFRS 16 lease liabilities (6.3) (5.9)
Net cash used in investing activities(1) (1.3) (0.9)
Net free cash flow (4.3) 2.8
(1) Excludes £6.3m (2022: £8.5m) of cash outflows relating to the
acquisition of subsidiaries (net of any cash acquired), £nil (2022: £3.7m)
relating to the disposal of discontinued operations (net of cash disposed) and
£nil related to the purchase of investments (2022: £0.4 m).
The £9.0m working capital outflow (2022: £2.1m) is reflective of Lettings
revenue recognition outpacing cash collections as a result of the previously
mentioned introduction of shorter billing periods for landlords opting to
agree to longer tenancy terms. Working capital flows are expected to normalise
across 2024 as the portfolio continues to transition to shorter billing
periods.
Net free cash flow, from continuing and discontinued operations, was a £4.3m
outflow (2022: £2.8m inflow), with the reduction due to the Lettings working
capital outflow previously noted.
Net debt at 30 June 2023 was £2.1m (30 June 2022: £11.6m net cash) with
£5.1m of external borrowings (30 June 2022: £0.1m).
Acquisitions
Atkinson McLeod - acquired 3 March 2023
On 3 March 2023, the Group acquired the entire issued capital of Atkinson
McLeod. The acquisition has a strong lettings business that generates 90% of
revenue across c.1,100 tenancies. Gross purchase consideration was £8.2m,
with £7.5m paid to date and £0.7m deferred for a period of 12 months post
completion.
Acquired net assets were provisionally fair valued at the date of acquisition
and include £2.6m of customer contracts and relationships and £5.6m of
acquired goodwill. The acquisition contributed £0.9m of revenue and £0.3m of
adjusted operating profit in the first four months of ownership, and prior to
integration synergies being realised. Refer to Note 11 for further details.
Gordon & Co and Stones Residential - acquired 25 May 2022
On 25 May 2022, the Group acquired the entire issued share capital of two
estate agents, Gordon & Co, and Stones Residential. Gross purchase
consideration for both businesses, after adjustments for deferred
consideration, is estimated to be £9.7m. £8.4m of the gross purchase
consideration was paid at 30 June 2023, with an estimated £1.3m deferred
consideration payable in H2 2023.
Discontinued operations
H1 2023 H1 2022
£m
£m
Revenue - 0.6
Adjusted operating loss - (0.6)
Less: adjusted items - 0.2
Operating loss - (0.4)
Loss after tax - (0.3)
In H1 2022, discontinued operations related to D&G Sales, which was
acquired alongside D&G Lettings and disposed of on 11 February 2022. In
2022, on a total Group basis, which includes both continuing and discontinued
operations, revenue was £65.6m and adjusted operating profit was £5.6m.
In H1 2023, there were no discontinued operations.
Other balance sheet positions
At 30 June 2023 the significant balance sheet positions were:
· Goodwill of £31.7m (2022: £26.0m) and other intangible assets
of £111.8m (2022: £109.5m), with the increase in goodwill and other
intangible assets due to the acquisition of Atkinson McLeod which contributed
£5.6m of goodwill and £2.6m of customer contracts and relationships.
· Trade and other receivables of £18.6m (2022: £18.9m) and trade
and other payables of £18.3m (2022: £18.2m).
· Total contract assets of £13.3m (2022: £5.5m) and total
contract liabilities of £10m (2022: £8.4 m), with the increase in contract
assets being 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. Increase in contract liabilities was mainly driven by
the acquired Atkinson McLeod's contract liabilities of £0.9m.
· Lease liabilities of £45.8m (2022: £46.9m) and right-of-use
assets of £42.7m (2022: £42.2m).
· Intangible assets under construction of £1.4m (2022: £0.2m).
Capital allocation and Dividends
The Board has declared an interim dividend of 0.2p per share (2022: interim
dividend of 0.2p per share). Payment will be made on 12 September 2023 to
shareholders on the register at close of business on 4 August 2023. The shares
will be quoted ex-dividend on 3 August 2023. The Company operates a Dividend
Reinvestment Plan ("DRIP"), which is managed by its registrar, Link Group. For
shareholders who wish to receive their dividend in the form of shares, the
deadline to elect for the DRIP is 18 August 2023.
Capital returns
The £3m share buyback programme announced in November 2022 was completed in
May 2023. In the period, £1.1m (2022: £0.9m) of shares, or 2,847,821 shares
(2022: 14,829,261 shares), were bought back to return excess capital to
shareholders. The Board will keep the continuation of the share buyback under
review bearing in mind our other capital needs and potential returns available
on lettings acquisitions. Since 2020, a total of £12.0m of shares (28,513,694
shares) have been bought back.
Post balance sheet events
There are no post balance sheet events to report.
Related partY transactions
Related party transactions are disclosed in Note 13 of the condensed financial
statements. There have been no material changes to the related party
transactions described in the 2022 Annual Report and Accounts.
Treasury policies, objectives & revolving credit Facility
The Group's treasury policy is designed to reduce financial risk. Financial
risk for the Group is low as the Group is in a net cash position, is entirely
UK based with no foreign currency risks and surplus cash balances are held
with major UK based banks. As a consequence, the Group has not had to enter
into any financial instruments to protect against risk.
In the period, the RCF was successfully refinanced, with an increase in the
committed facility size from £5m to £20m, and the term extended to June
2026. The terms of the facility have remained materially the same as the
previous facility and remains unsecured. Drawdowns on the facility accrue
interest at SONIA +1.65%.
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 17 and
18 for details of the Group's risk management framework and principal risks
and uncertainties.
Going concern
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. 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
26 July 2023
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
descriptions have been updated to reflect prevailing and expected conditions
where necessary.
Risk Impact on the Group
Market risk The key factors driving market risk are:
· Affordability, including the current cost of living increases,
which in turn may reduce 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. Borrowing
rates in the UK have continued to climb in 2023 reflecting increases in the
Bank of England base rate as steps are taken to control inflation;
· The market being impacted by changes in government policy such as
future changes in stamp duty taxes or increased regulation in the lettings
market, including the impact of future rental market reforms;
· Arguably a reduction in London's standing as a major financial
city caused by the macro-economic and political environment; and
· Ongoing geopolitical risk which may increase market uncertainty
and customer confidence.
Competitor challenge The Group operates in a highly competitive marketplace. New or existing
competitors could develop new technology, service models or methods of working
which could give them 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 tenant deposits 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.
Risk Impact on the Group
IT systems and cyber risk Our proprietary operating system continues to provide us with a competitive
advantage by connecting our entire network of agents and enables efficient
processes and the ability to deliver higher levels of customer service.
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 interim results announcement contains certain forward-looking statements
with respect to the financial condition and results of operations of Foxtons
Group plc. These statements and forecasts involve risk and uncertainty because
they relate to events and depend upon circumstances that will occur in the
future. There are a number of factors that could cause actual results or
developments to differ materially from those expressed or implied by these
forward-looking statements and forecasts. The forward-looking statements are
based on the Directors' current views and information known to them at 26 July
2023. The Directors do not make any undertakings to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Nothing in this statement should be construed as a profit
forecast.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
We confirm that to the best of our knowledge:
(a) The condensed set of financial statements has been prepared in
accordance with IAS 34 'Interim Financial Reporting';
(b) The interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events during the
first six months and description of principal risks and uncertainties for the
remaining six months of the year); and
(c) The interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
By order of the Board
Guy Gittins Chris Hough
Chief Executive Officer Chief Financial Officer
26 July 2023 26 July 2023
CONDENSED CONSOLIDATED INCOME STATEMENT
Six months ended 30 June 2023
Continuing operations Notes H1 2023 H1 2022
(unaudited) (unaudited)
£'000
£'000
Revenue 2 70,933 65,066
Direct operating costs (26,456) (23,210)
Other operating costs (37,629) (36,605)
Operating profit 6,848 5,251
Finance income 221 46
Finance costs (1,008) (998)
Profit before tax from continuing operations 6,061 4,299
Tax charge 4 (1,939) (1,394)
Profit for the period from continuing operations 4,122 2,905
Discontinued operations
Loss after tax for the period from discontinued operations 5 - (318)
Profit for the period attributable to shareholders of the Company 4,122 2,587
Earnings per share
From continuing operations
Basic earnings per share 7 1.4p 0.9p
Diluted earnings per share 7 1.3p 0.9p
From continuing and discontinued operations
Basis earnings per share 7 1.4p 0.8p
Diluted earnings per share 7 1.3p 0.8p
Adjusted results
From continuing operations
Adjusted operating profit(1,4) 2 6,824 6,159
Adjusted earnings for the purposes of the adjusted earnings per share(2,4) 7 4,182 3,618
Adjusted basic earnings per share(3,4) 1.4p 1.1p
Adjusted diluted earnings per share(3,4) 7 1.3p 1.1p
(1)Adjusted operating profit is an APM and is reconciled to statutory profit
before tax in Note 2. Adjusted operating profit from continuing operations is
presented before charging £nil of adjusted items (2022: £0.9m) as set out in
Note 3.
(2) Adjusted earnings for the purposes of adjusted earnings per share from
continuing operations is presented before charging £0.1m of adjusted items
(2022: £0.7m) including the associated tax charge totalling £0.1 m (2022:
£0.2m credit), as set out in Note 7.
(3)Adjusted basic and diluted earnings per share is an APM and is reconciled
to statutory earnings per share in Note 7.
(4) Further details of the APMs are provided in Note 15.
The notes on pages 25 to 37 form part of this condensed consolidated financial
information.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended 30 June 2023
H1 2023 H2 2022
(unaudited) (unaudited)
£'000
£'000
Profit for the period attributable to shareholders of the Company 4,122 2,587
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 - (46)
Other comprehensive loss for the period - (46)
Total comprehensive income for the period 4,122 2,541
Total comprehensive income attributable to shareholders of the Company
arising from:
Continuing operations 4,122 2,905
Discontinued operations - (364)
4,122 2,541
The notes on pages 25 to 37 form part of this condensed consolidated financial
information.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2023
Notes 30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
£'000
£'000 £'000
Non-current assets
Goodwill 8 31,663 26,031 26,050
Other intangible assets 8 111,820 109,496 109,309
Property, plant and equipment 10,885 9,722 10,692
Right-of-use assets 9 42,728 42,178 42,570
Contract assets 3,004 897 1,688
Investments 31 3,717 6
Deferred tax assets 1,563 1,048 1,386
201,694 193,089 191,701
Current assets
Trade and other receivables 18,639 18,860 16,016
Contract assets 10,291 4,622 5,688
Current tax assets - - 745
Cash and cash equivalents 3,006 11,667 12,027
31,936 35,149 34,476
Total assets 233,630 228,238 226,177
Current liabilities
Trade and other payables (18,261) (18,224) (16,694)
Borrowings (4,846) (50) -
Current tax liabilities (225) (374) -
Lease liabilities 9 (10,147) (11,577) (10,708)
Contract liabilities (9,611) (7,376) (9,745)
Provisions (541) (1,396) (1,506)
(43,631) (38,997) (38,653)
Net current liabilities (11,695) (3,848) (4,177)
Non-current liabilities
Borrowings (115) - -
Lease liabilities 9 (35,657) (35,323) (35,753)
Contract liabilities (410) (997) (289)
Provisions (2,012) (1,619) (1,765)
Deferred tax liabilities (27,627) (27,196) (27,049)
(65,821) (65,135) (64,856)
Total liabilities (109,452) (104,132) (103,509)
Net assets 124,178 124,106 122,668
Equity
Share capital 3,301 3,301 3,301
Merger reserve 20,568 20,568 20,568
Other reserves 2,653 2,653 2,653
Own shares reserve 12 (12,092) (7,014) (10,993)
Retained earnings 109,748 104,598 107,139
Total equity 124,178 124,106 122,668
The notes on pages 25 to 37 form part of this condensed consolidated financial
information.
These unaudited condensed consolidated interim financial statements for the 6
months ended 30 June 2023 were approved by the Board on 26 July
2023.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Six months ended 30 June 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 period attributable to shareholders of the Company - - - - 4,122 4,122
Changes in fair value of equity instruments at FVOCI - - - - - -
Total comprehensive income for the period - - - - 4,122 4,122
Dividends 6 - - - - (2,122) (2,122)
Own shares acquired in the period 12 - - - (1,112) - (1,112)
Credit to equity for share-based payments - - - - 622 622
Settlement of share incentive plan - - - 13 (13) -
Balance at 30 June 2023 (unaudited) 3,301 20,568 2,653 (12,092) 109,748 124,178
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 period attributable to shareholders of the Company - - - - 2,587 2,587
Changes in fair value of equity instruments at FVOCI - - - - (46) (46)
Total comprehensive income for the period - - - - 2,541 2,541
Dividends 6 - - - - (856) (856)
Own shares acquired in the period 12 - - - (963) - (963)
Debit to equity for share-based payments - - - - (20) (20)
Settlement of share incentive plan - - - 8 (106) (98)
Balance at 30 June 2022 (unaudited) 3,301 20,568 2,653 (7,014) 104,598 124,106
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 period 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 - - - - (1,487) (1,487)
Own shares acquired in the period 12 - - - (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
The notes on pages 25 to 37 form part of this condensed consolidated financial
information.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Six months ended 30 June 2023
Notes H1 2023 H1 2022
(unaudited) (unaudited)
£'000
£'000
Operating activities 2 6,848 5,251
Operating profit from continuing operations
Operating loss from discontinued operations - (414)
Operating profit from continuing and discontinued operations 6,848 4,837
Adjustments for:
Depreciation of property, plant and equipment and right-of-use assets 6,385 6,044
Amortisation of intangible assets 834 695
Gain on disposal of discontinued operations - (180)
Gain on disposal of lease liability (617) -
Sub-lease asset impairment 190 152
Loss/(gain) on disposal of property, plant and equipment and right-of-use 26 (424)
assets
(Decrease)/increase in provisions (896) 806
Cash settlement of share incentive plan - (98)
Share-based payment charges/(credit) 522 (49)
Operating cash flows before movements in working capital 13,292 11,783
Increase in receivables and contract assets (8,723) (2,905)
(Decrease)/increase in payables and contract liabilities (234) 829
Cash generated by operations 4,335 9,707
Income taxes paid (1,102) (60)
Net cash from operating activities 3,233 9,647
Investing activities
Interest received 221 37
Proceeds on disposal of property, plant and equipment - 46
Proceeds on disposal of associate and investments - 40
Purchases of property, plant and equipment (792) (989)
Purchases of intangibles (698) -
Purchases of investments 10 (25) (400)
Acquisition of subsidiaries (net of cash acquired) 11 (6,328) (8,490)
Disposal of discontinued operations 5 - (3,715)
Net cash used in investing activities (7,622) (13,471)
Financing activities
Net proceeds from borrowings 4,800 -
Dividends paid 6 (2,122) (856)
Interest paid (38) (15)
Repayment of lease liabilities 9 (6,288) (5,926)
Sub-lease receipts 128 56
Purchase of own shares 12 (1,112) (857)
Net cash used in financing activities (4,632) (7,598)
Net decrease in cash and cash equivalents (9,021) (11,422)
Cash and cash equivalents at beginning of period(1), comprised: 12,027 23,089
Cash and cash equivalents (continuing operations) 12,027 19,374
Cash included in assets held for sale (discontinued operations) - 3,715
Cash and cash equivalents at end of period 3,006 11,667
(1) Total Group balances, which include continuing and discontinued
operations.
The notes on pages 25 to 37 form part of this condensed consolidated financial
information.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL REPORT
1. accounting policies, judgements and estimates
1.1 General Information
Foxtons Group plc ("the Company") is a company incorporated in the United
Kingdom under the Companies Act 2006. The address of the Company's registered
office is Building One, Chiswick Park, 566 Chiswick High Road, London W4 5BE.
The principal activity of the Company and its subsidiaries (collectively, "the
Group") is the provision of services to the residential property market in the
UK.
These financial statements are presented in pounds sterling which is the
currency of the primary economic environment in which the Group operates.
1.2 Basis of preparation
These condensed interim financial statements do not comprise statutory
accounts within the meaning of section 434 of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2022 were approved by the
Directors on 6 March 2023 and delivered to the Registrar of Companies. The
report of the auditors on those accounts was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement under section
498 of the Companies Act 2006. The financial statements have been reviewed,
not audited.
This condensed consolidated interim financial report for the half-year
reporting period ended 30 June 2023 has been prepared in accordance with the
UK-adopted International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
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 financial statements. Furthermore, the Group expects to be in
compliance with the RCF's covenants throughout the going concern review
period.
The going concern assessment has taken into consideration the Group's
financial position, liquidity requirements, recent trading performance and the
outcome of reverse stress testing which determines the point at which the
Group could be considered to fail without taking further mitigating actions or
raising additional funds.
At 30 June 2023 the Group was in a net debt position of £2.1m (31 December
2022: £12.0m net cash) and a net current liability position of £11.7m (31
December 2022: £4.2m). The net debt position reflects a cash and cash
equivalent balance of £3.0m (31 December 2022: £12.0m) and £5.1m of
external borrowing, which includes £5m drawn down on the Company's £20m RCF.
The RCF was refinanced in June 2023, increasing the facility size from £5m to
£20m, as well as extending the facility to June 2026. The terms of the
facility have remained materially the same as the previous facility and
remains unsecured. Drawdowns on the facility accrue interest at SONIA +1.65%.
Reverse stress scenario
In assessing the Group's ability to continue as a going concern, the Directors
have reviewed the Group's cash flow forecasts which have been stress tested
using a reverse stress scenario which incorporates a severe and unlikely
deterioration in market conditions.
The reverse stress scenario incorporates a reduction in trading from October
2023 to December 2024 against plan, reflecting a 65% reduction in sales market
transactions and a 10-20% reduction in Lettings units compared to base case.
For context, a 65% reduction in sales market transactions would see
transactions levels in the market at 6% above 2009 levels (after the Global
Financial Crisis) in 2023 and 17% below 2009 levels in 2024.
In the unlikely event of the reverse stress scenario, the Group's ability to
draw down sufficient borrowings on the RCF would be constrained by the
facility's covenants which would be breached in July 2024. Under such a
scenario, additional mitigating action could be taken to protect liquidity.
1.4 Accounting policies, interpretations and amendments
adopted by the Group
The accounting policies applied in these interim statements are the same as
those applied in the Group's 2022 Annual Report and Accounts, with the
exception of certain new interpretations and amendments adopted in the current
period which had no significant effect on the Group's results.
1.5 Discontinued operations
Discontinued operations are excluded from the results of continuing operations
and are presented as a single amount as profit or loss after tax from
discontinued operations in the consolidated income statement. Additional
disclosures are provided in Note 5. All other notes to the interim financial
statements include amounts for continuing operations only, unless indicated
otherwise.
1.6 Alternative performance measures
In reporting financial information the Group presents APMs which are not
defined or specified under the requirements of IFRS. The Group believes that
the presentation of APMs provides stakeholders with additional helpful
information on the performance of the business, but does not consider them to
be a substitute for or superior to IFRS measures. APMs are also used to
enhance the comparability of information between reporting periods, by
adjusting for uncontrollable factors which affect IFRS measures, to aid users
in understanding the Group's performance. The Group's APMs are defined and
purpose explained within Note 15.
Adjusted items include costs or revenues which due to their size and incidence
require separate disclosure in the financial statements to reflect
management's view of the underlying performance of the Group and allow
comparability of performance from one period to another. Items include
restructuring and impairment charges, significant acquisition costs and any
other significant exceptional items.
1.7 Critical accounting judgements and key sources of
estimation uncertainty
The Group's critical accounting judgements and key sources of estimation
uncertainty are consistent with those described in the Group's 2022 Annual
Report and Accounts.
2. Business and geographical segments
Products and services from which reportable segments derive their revenues
Management has determined the operating segments based on the monthly
management pack reviewed by the Directors, which is used to assess both the
performance of the business and to allocate resources within the Group.
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 client monies.
(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 Board on a segmental
basis and are therefore not disclosed. Goodwill and intangible assets have
been allocated to reportable segments as described in Note 8.
The segmental disclosures include two APMs as defined below. Further details
of the APMs is provided in Note 15.
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 and finance cost.
Adjusted operating profit margin is defined as adjusted operating profit
divided by revenue. As explained in Note 15, 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 half year ended 30 June 2023:
Notes Lettings Sales Financial services Corporate costs Consolidated
( ) £'000 £'000 £'000 £'000 £'000
Revenue 49,768 16,933 4,232 n/a 70,933
Contribution 15 37,362 5,540 1,575 n/a 44,477
Contribution margin 15 75.1% 32.7% 37.2% n/a 62.7%
Adjusted operating profit/(loss) 15 14,145 (6,364) 199 (1,156) 6,824
Adjusted operating profit margin 15 28.4% (37.6%) 4.7% n/a 9.6%
Adjusted items 3 24
Operating profit 6,848
Finance income 221
Finance costs (1,008)
Profit before tax 6,061
Lettings Sales Financial services Corporate costs Consolidated
( ) £'000 £'000 £'000 £'000 £'000
Depreciation and amortisation 4,031 2,529 51 - 6,611
(excluding acquired intangibles)
Amortisation from acquired intangibles 608 - - - 608
Total 4,639 2,529 51 - 7,219
The following is an analysis of the Group's continuing operations results by
reportable segment for the half year ended 30 June 2022:
( ) Notes Lettings Sales Financial services Corporate costs Consolidated
£'000 £'000 £'000 £'000 £'000
Revenue 39,443 20,823 4,800 n/a 65,066
Contribution 15 28,942 10,860 2,054 n/a 41,856
Contribution margin 15 73.4% 52.2% 42.8% n/a 64.3%
Adjusted operating profit/(loss) 15 7,260 (671) 819 (1,249) 6,159
Adjusted operating profit margin 15 18.4% (3.2%) 17.1% n/a 9.5%
Adjusted items 3 (908)
Operating profit 5,251
Other losses -
Finance income 46
Finance costs (998)
Profit before tax 4,299
D&G Sales (disposed 11 February 2022) is presented as a discontinued
operation. Refer to Note 5 for further details.
Lettings Sales Financial services Corporate costs Consolidated
( ) £'000 £'000 £'000 £'000 £'000
Depreciation and amortisation 3,827 2,433 51 - 6,311
(excluding acquired intangibles)
Amortisation from acquired intangibles 407 21 - - 428
Total 4,234 2,454 51 - 6,739
3. ADJUSTED ITEMS
Adjusted operating profit, adjusted operating profit margin and adjusted
earnings per share, exclude adjusted items. These APMs are defined, purpose
explained and reconciled to statutory measures in Note 2 and Note 15. The
following items have been classified as adjusted items attributable to
continuing operations in the period.
H1 2023 H1 2022
£'000
£'000
Property related credit(1) (148) (59)
Transaction related costs(2) 124 246
Reorganisation costs(3) - 721
(24) 908
(1)Property related credit relates to the net of a charge for re-estimation of
the provision for adjusted items, a net gain on the disposal of IFRS 16
balances and other charges relating to vacant property (including, in H1 2023,
£0.2m of costs relating to the closure of three Atkinson McLeod branches with
business now being served out of the existing Foxtons branch network).
(2)Transaction related costs relate to the acquisition of Atkinson McLeod
Limited (2022: for the acquisition of IMM Properties Limited).
(3)Net costs of Executive reorganisation.
4. Taxation
The components of the income tax charge recognised in the Group income
statement are:
H1 2023 H1 2022
£'000
£'000
Current tax charge 1,915 694
Deferred tax charge 24 583
Tax charge on profit on ordinary activities from continuing and discontinued 1,939 1,277
operations
Less: discontinued operations tax credit - 117
Tax charge on profit on ordinary activities from continuing operations 1,939 1,394
The tax charged within the 6 months ended 30 June 2023 has been calculated by
applying the effective rate of tax which is expected to apply to the Group for
the year ending 31 December 2023 using rates substantively enacted as at
30 June 2023 as required by IAS 34 'Interim Financial Reporting'.
Deferred tax assets/liabilities have been recognised at 25% reflecting the
prevailing UK corporate tax rate.
5. DISCONTINUED OPERATIONS
On 11 February 2022, the D&G Sales business, including branch and head
office leases, was disposed of through the sale of the entire share capital of
Douglas & Gordon Limited and Douglas & Gordon (2) Limited, to Lochlan
for nominal consideration of £2. In 2022, the results of D&G Sales for
the period 1 January to 11 February 2022, which showed a loss of £0.3m are
presented as a discontinued operation. In 2023 there are no discontinued
operations.
Discontinued operations: Cash flows
The net cash flows incurred by discontinued operations are as follows:
2023 2022
£'000 £'000
Net cash outflow from operating activities - (458)
Net cash outflow from investing activities - (3,715)
Net cash outflow from financing activities - (18)
Net cash outflow - (4,191)
6. Dividends
H1 2023 H1 2022
£'000 £'000
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2022: 0.7p (31 December 2021: 2,122 856
0.27p) per ordinary share
2,122 856
For 2023, the Board has declared an interim dividend of 0.2p (2022: 0.2p) per
ordinary share to be paid in September 2023. The financial statements do not
reflect the dividend payable.
7. Earnings per share
Basic earnings per share is calculated by dividing the profit for the period
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.
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 dilutive potential ordinary shares into ordinary
shares. The Company's potentially dilutive ordinary shares are in respect of
share options granted to employees.
Continuing operations Total Group
(continuing and discontinued operations)
H1 2023 H1 2022 H1 2023 H1 2022
£'000 £'000 £'000 £'000
Profit for the purposes of basic and diluted earnings/(loss) per share 4,122 2,905 4,122 2,587
Adjusted items (including associated taxation)(1) 60 713 60 533
Adjusted earnings for the purposes of adjusted earnings per share 4,182 3,618 4,182 3,120
(1)Net adjusted items credit relating to continuing operations of £24k (2022:
£908k), plus associated tax charge of £84k (2022: £194k credit), resulting
in an after tax adjusted items charge of £60k (2022: £713k). Refer to Note 3
for details on adjusted items.
Number of shares 2023 2022 2023 2022
Weighted average number of ordinary shares for the purposes of basic earnings 302,815,955 317,888,904 302,815,955 317,888,904
per share
Effect of potentially dilutive ordinary shares(1) 11,723,508 2,633,344 11,723,508 2,633,344
Weighted average number of ordinary shares for the purpose of diluted earnings 314,539,463 320,522,248 314,539,463 320,522,248
per share
Earnings per share (basic) 1.4p 0.9p 1.4p 0.8p
Earnings per share (diluted) 1.3p 0.9p 1.3p 0.8p
Adjusted earnings per share (basic) 1.4p 1.1p 1.4p 1.0p
Adjusted earnings per share (diluted) 1.3p 1.1p 1.3p 1.0p
(1) The main drivers of an increase in the effect of potentially dilutive
ordinary shares from H1 2022 are the LTIP buyout awarded to the CEO upon
joining the business in September 2022 and new share awards issued in April
2023.
In the prior period, the basic and diluted loss per share for discontinued
operations was 0.1p.
8. Goodwill and other intangible assets
At 30 June 2023, goodwill and other intangible assets total £143.5m (30 June
2022: £135.5m) as detailed below, with £5.6m of goodwill and £2.6m of
intangible assets additions in the period attributable to the acquisition of
Atkinson McLeod (refer to Note 11 for further details).
30 June 2023 30 June 2022 31 December 2022
£'000
£'000
£'000
Goodwill 31,663 26,031 26,050
Brand 99,000 99,000 99,000
Software 228 555 446
Customer contracts and relationships 11,147 9,726 9,108
Assets under construction 1,445 215 755
Other intangible assets 111,820 109,496 109,309
Goodwill and other intangible assets 143,483 135,527 135,359
a) Review for indicators of impairment at 30 June 2023
Under IAS 36 'Impairment of Assets', the Group is required to:
· review its intangible assets in the event of a significant change in
circumstances that would indicate potential impairment; and
· review and test its goodwill and indefinite-life intangible assets
annually or in the event of a significant change in circumstances.
At 30 June 2023, the Group has assessed for indicators of impairment of the
Group's goodwill and brand asset. Following consideration of both internal and
external impairment indicators, including 2023 year-to-date trading
performance, no indicators of impairment have been identified.
b) Sensitivity analysis
Sensitivity analysis was performed as part of the impairment review for the
year ended 31 December 2022 to assess whether the carrying value of the
Foxtons brand asset is sensitive to reasonable possible changes in key
assumptions and whether any changes in key assumptions would materially change
the carrying value. Lettings goodwill showed significant headroom against all
sensitivity scenarios, whilst the brand asset was sensitive to reasonable
possible changes in key assumptions.
The key assumption used in the 2022 brand asset impairment assessment was the
forecast revenues for the sales and lettings businesses. The carrying value of
the brand asset was not highly sensitive to changes in discount rates or
long-term growth rates.
As disclosed in Note 10 of the 2022 Annual Report and Accounts, the impairment
model indicated brand asset headroom of £71.1m or 38% of the carrying value
under test. Cash flows are from the Group's Board approved plan while also
complying with the requirements of the relevant accounting standard. Sales
revenue was assumed to decline in 2023 before fully recovering by 2026,
resulting in a compound average growth rate (CAGR) of 3.2% over the forecast
period. Lettings revenue was assumed to grow at a CAGR of 4.3% over the
forecast period, excluding future Lettings portfolio acquisitions that must be
excluded from forecast cash flows under the relevant accounting standard.
It was disclosed that 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 3.9% to 2.1%. Under a reasonable possible
downside scenario, in which Sales revenue only fully recovers by 2027,
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 would be impaired by £1.2 million. At 30 June 2023, consideration
of the latest economic and geo-political conditions have been made, and there
have been no significant changes to this reasonable possible downside
scenario.
The Group will complete a full annual impairment review, as required under IAS
36, for the goodwill and brand assets in the second half of the year.
9. leases
Right-of-use assets
The carrying amounts of the right-of-use assets recognised and the movements
during the period are outlined below:
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Opening balance 42,570 43,832 43,832
Additions 6,633 2,957 8,564
Acquired through business combinations - 599 599
Lease modifications 67 - 138
Disposals (1,330) (149) (558)
Depreciation (5,212) (5,027) (10,134)
Impairment charge - (34) 129
Closing balance 42,728 42,178 42,570
Lease liabilities
The carrying amounts of lease liabilities recognised and the movements during
the period are outlined below:
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Opening balance 46,461 48,083 48,083
Additions 6,590 2,933 8,497
Acquired through business combinations - 880 880
Lease modifications 67 - 138
Disposals (1,996) (75) (416)
Interest charge 970 984 1,965
Payments(1) (6,288) (5,905) (12,686)
Closing balance 45,804 46,900 46,461
Current 10,147 11,577 10,708
Non-current 35,657 35,323 35,753
(1)IFRS 16 lease payments relating to discontinued operations totalling £21k
were made in the period ended 30 June 2022.
At the balance sheet date, continuing operations had outstanding commitments
for future minimum lease payments which fall due as follows:
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Maturity analysis - contractual undiscounted cash flows from continuing
operations
Within one year 11,874 11,620 11,671
In the second to fifth years inclusive 30,917 30,990 30,147
After five years 9,145 10,477 10,598
51,936 53,087 52,416
10. Financial instruments
Categories of financial instruments
The categories of financial instruments, including contact assets and
liabilities, held by the Group are as follows:
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Financial assets
FVOCI financial assets 31 3,717 6
Cash and cash equivalents 3,006 11,667 12,027
Financial assets recorded at amortised cost 28,935 21,254 18,650
Financial liabilities
Financial liabilities recorded at amortised cost (21,461) (20,371) (21,967)
Borrowings (4,961) (50) -
Lease liabilities (45,804) (46,900) (46,461)
Management considers that the book value of financial assets and liabilities
recorded at amortised cost and their fair value are approximately equal.
Fair value hierarchy
The Group uses the following hierarchy for determining the fair value of the
financial instruments held:
· Level 1 - Quoted market prices
· Level 2 - Valuation techniques (market observable)
· Level 3 - Valuation techniques (non-market observable)
At 30 June 2023, the Group does not hold any financial instruments categorised
as Level 1 or 2 by IFRS 13 (31 December 2022: £nil, 30 June 2022: £nil).
The Level 3 financial instruments held by the Group relate solely to unlisted
equity shares.
The following table shows the changes in Level 3 financial assets for the six
months ended 30 June:
2023 2022
£'000 £'000
Opening balance 1 January 6 3,317
Additions 25 400
Closing balance 30 June 31 3,717
There were no transfers between Level 1 and Level 3 during the period.
Financial risk factors
The Group's activities expose it to a variety of financial risks including,
interest rate risk, credit risk and liquidity risk. The condensed interim
financial statements do not include all financial risk management information
and disclosures as required in the annual financial statements; they should be
read in conjunction with the information included in Note 23 of the 2022
Annual Report and Accounts. There have been no changes in any risk management
policies since the year end.
11. business combinations
During the period, the Group acquired 100% of the share capital of Atkinson
McLeod Limited ('Atkinson McLeod'), a London estate agent focused on providing
lettings and property management services. The acquisition is in line with the
Group's strategy of acquiring high quality businesses with strong lettings
portfolios.
A provisional purchase price allocation exercise, which will be finalised in
the second half of the year, has been completed which provisionally identified
£2.6m of acquired intangible assets relating to customer contracts and
relationships, which are identifiable and separable, and will be amortised
over 10 years. The discount rate applied to the cash flows is based on the
Atkinson McLeod's weighted average cost of capital (WACC) and is calculated
using a capital asset pricing model. The WACC has been adjusted to reflect
risks specific to Atkinson McLeod not already reflected in the future cash
flows.
£5.6m of goodwill has arisen on the acquisitions 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 units which are expected to
benefit from the synergies of the combination. None of the goodwill is
expected to be deductible for tax purposes.
From the date of acquisition, the business combinations contributed £0.7m of
revenue and £0.1m profit before tax to the Group's performance from 3 March
2023 to 30 June 2023. If the combination had taken place at the beginning of
the year, revenue for the period would have been £1.3m higher and profit
before tax would have increased by £0.3m.
Assets acquired and liabilities assumed
The provisional fair values of the identifiable assets and liabilities of
Atkinson McLeod 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 and are on a
provisional basis due to the timing of the acquisitions.
Atkinson McLeod
£'000
Assets
Acquired intangible assets recognised on acquisition 2,647
Property, plant and equipment 600
Cash and cash equivalents 1,301
Trade and other receivables 68
Contract assets 156
4,772
Liabilities
Trade and other payables 304
Contract liabilities 918
Current tax liability 154
Deferred tax liability 473
Borrowings 161
Provisions 178
2,188
Total identifiable net assets at fair value 2,584
Goodwill arising on acquisition 5,613
Fair value of consideration transferred 8,197
The fair value of the combined trade receivables amounts to less than £0.1m.
The gross amount of trade receivables is less than £0.1m and it is expected
that the full contractual amounts can be collected.
The deferred tax liability mainly comprises the tax effect of the accelerated
amortisation for tax purposes of the acquired intangible assets recognised on
acquisition offset by the tax effect of the accelerated revenue recognition.
Purchase consideration
Atkinson McLeod
£'000
Amount settled in cash 7,457
Deferred cash consideration 740
Fair value of consideration transferred 8,197
Gross purchase consideration was £8.2m, with £7.5m paid in March 2023.
Consideration paid in the period, net of cash acquired, was £6.2m and is
included in cash flows used in investing activities. £0.7m of deferred cash
consideration is payable 12 months from the transaction completion date, with
the liability included within trade and other payables.
2022 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 £0.2m was paid during the period
representing the partial settlement of deferred consideration, with an
estimated £1.3m of deferred consideration payable in the second half of the
year.
Analysis of cash flows on acquisition
Total
£'000
Cash consideration (7,457)
Deferred and contingent consideration paid in relation to 2022 acquisitions (172)
Cash acquired in subsidiaries 1,301
Acquisitions of subsidiaries, net of cash acquired (included in cash flows (6,328)
used in investing activities)
Transaction costs of the acquisition (included in cash flows from operating (124)
activities)
Net cash flow on acquisitions (6,452)
Transaction costs amounting to £0.1m are not included as part of
consideration transferred and have been recognised as an adjusted item expense
in the Group's consolidated income statement (refer to Note 3).
12. OWN SHARES RESERVE
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Opening balance 10,993 6,059 6,059
Acquired during the period 1,112 963 4,941
Utilised during the period (13) (8) (7)
Closing balance 12,092 7,014 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 incentive schemes.
The number of ordinary shares held by the Company and the Employee Benefit
Trust at 30 June 2023 was 28,860,245 (2022: 13,887,108).
During the first six months of the year 2,847,821 (2022: 2,772,985) shares
with a total value of £1,112,042 (2022: £962,859) have been repurchased by
the Company through a share buyback programme and are held in treasury at
30 June 2023. From the total value spent in the period ended 30 June 2022,
£0.1m of the balance is included within trade and other payables.
13. RelaTed party transactions
Balances and transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not disclosed
in this note.
As set out in Note 5, in the prior year, the D&G Sales business was
disposed of on 11 February 2022 through the sale of the entire share capital
of Douglas & Gordon Limited and Douglas & Gordon (2) Limited, to
Lochlan, 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, a previous director of Douglas & Gordon Limited, and
Lochlan constituting related parties.
14. Client monies
At 30 June 2023, client monies held within the Group in approved bank accounts
amounted to £125m (31 December 2022: £112.4m, 30 June 2022: £113.4m).
Neither this amount nor the matching liabilities to the clients concerned, are
included in the consolidated balance sheet. The Group's terms and conditions
provide that interest income on these deposits accrues to the 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.
15. Alternative performance measures
In reporting financial information the Group presents APMs which are not
defined or specified under the requirements of IFRS. The Group believes that
the presentation of APMs provides stakeholders with additional helpful
information on the performance of the business, but does not consider them to
be a substitute for or superior to IFRS measures.
The Group's APMs are aligned to our strategy and together are used to measure
the performance of the business and form the basis of the performance measures
for remuneration. Adjusted results exclude certain items because if included,
these items could distort the understanding of our performance for the period
and the comparability between periods.
The definition, purpose and how the measures are reconciled to statutory
measures are set out below.
a) Adjusted operating profit and adjusted operating profit margin
Adjusted operating profit represents the profit before tax for the period
before finance income, finance costs, other gains and adjusted items (defined
within Note 2). This is the measure 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.
b) 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.
H1 2023 Lettings Sales Financial services Consolidated £'000
£'000 £'000 £'000
Revenue 49,768 16,933 4,232 70,933
Less: Direct operating costs (12,406) (11,393) (2,657) (26,456)
Contribution 37,362 5,540 1,575 44,477
Contribution margin 75.1% 32.7% 37.2% 62.7%
H1 2022 Lettings Sales Financial services Consolidated £'000
£'000 £'000 £'000
Revenue 39,443 20,823 4,800 65,066
Less: Direct operating costs (10,501) (9,963) (2,746) (23,210)
Contribution 28,942 10,860 2,054 41,856
Contribution margin 73.4% 52.2% 42.8% 64.3%
c) Adjusted earnings per share
Adjusted earnings per share is defined as earnings per share excluding the
impact of adjusted items.
The measure is derived by dividing profit after tax, adjusted for adjusted
items after tax, 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 basic earnings per share.
Refer to Note 7 for a reconciliation between statutory earnings per share and
adjusted earnings per share.
d) Net free cash flow
Net free cash flow is defined as net cash from operating activities less
repayment of IFRS 16 lease liabilities and net cash generated/used in
investing activities, excluding the acquisition of subsidiaries (net of any
cash acquired), divestments and purchases 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.
H1 2023 H1 2022
£'000 £'000
Net cash from operating activities 3,233 9,647
Less: Repayment of IFRS 16 lease liabilities (6,288) (5,926)
Net cash (outflow)/inflow from operating activities, after repayment of IFRS (3,055) 3,721
16 lease liabilities
Investing activities
Interest received 221 37
Proceeds on disposal of property, plant and equipment - 46
Purchases of property, plant and equipment (792) (989)
Purchase of intangibles (698) -
Net cash used in investing activities (1,269) (906)
Net free cash (outflow)/inflow (4,324) 2,815
e) Net (debt)/cash
Net cash/(debt) is defined as cash and cash equivalents less external
borrowings and excludes IFRS 16 lease liabilities. The definition of the
measure is consistent with the definition of the leverage ratio covenant
attached to the Group's RCF and therefore monitored internally for the
purposes of covenant compliance. A reconciliation of the measure is presented
below.
30 June 2023 30 June 2022 31 December 2022
£'000 £'000 £'000
Cash and cash equivalents 3,006 11,667 12,027
Less: External borrowings (1) (5,114) (50) -
Net (debt)/cash (2,108) 11,617 12,027
( )
(1) Excludes £0.2m of RCF arrangement and legal fees (30 June 2022: £nil, 31
December 2022: nil) that are offset against borrowings within the balance
sheet caption.
INDEPENDENT REVIEW REPORT TO FOXTONS GROUP PLC
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2023 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2023 which comprises the condensed consolidated income statement, the
condensed consolidated statement of comprehensive income, the condensed
consolidated statement of financial position, the condensed consolidated
statement of changes in equity, the condensed consolidated cash flow statement
and the related explanatory notes that have been reviewed.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1.2, the annual financial statements of the Group are
prepared in accordance with UK adopted International Accounting Standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the Directors have
inappropriately adopted the going concern basis of accounting or that the
Directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the Group to
cease to continue as a going concern.
Responsibilities of Directors
The Directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the Directors are responsible
for assessing the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statement in the
half-yearly financial report. Our conclusion, including our conclusions
relating to going concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority and for
no other purpose. No person is entitled to rely on this report unless such a
person is a person entitled to rely upon this report by virtue of and for the
purpose of our terms of engagement or has been expressly authorised to do so
by our prior written consent. Save as above, we do not accept responsibility
for this report to any other person or for any other purpose and we hereby
expressly disclaim any and all such liability.
Tim Neathercoat
BDO LLP
Chartered Accountants
London, UK
26 July 2023
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
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