REG - Foxtons Group PLC - Final Results
02/03/2022 07:00
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RNS Number : 2937D Foxtons Group PLC 02 March 2022
LEI: 5493001HCMG6R1MYKC59
Foxtons Group plc
FINAL RESULTS FOR THE FULL YEAR ENDED 31 DECEMBER 2021
2 MARCH 2022
Foxtons Group plc (the "Company" or "Foxtons"), London's leading estate agent,
today announces its results for the year ended 31 December 2021.
2021 was a good year for Foxtons with revenues, profits and cash flow
significantly ahead of 2019 and 2020 and we have made a positive start to
2022.
Financial summary
2021 2020 2019
Continuing operations(1):
Revenue £126.5m £93.5m £106.9m
Adjusted operating profit/(loss)(2) £8.9m £1.9m (£0.7m)
Profit/(loss) before tax £5.6m (£1.4m) (£8.8m)
Adjusted earnings/(loss) per share (basic and diluted)(3) 1.9p (0.2p) (1.1p)
Loss per share (basic and diluted) (0.4p) (1.0p) (2.8p)
Total Group(4):
Net free cash inflow/(outflow)(5) £6.6m £4.3m (£2.5m)
Full year dividends per share 0.45p - -
2021 financial highlights
· From continuing operations(1):
- Revenue of £126.5m, up 35% against 2020 and up 18% against
2019, reflecting improved market conditions, market share growth and
contribution from lettings portfolio acquisitions including Douglas &
Gordon (D&G).
- Adjusted operating profit of £8.9m (2020: £1.9m) after £1.5m
voluntary repayment of business rates.
· Net free cash flow of £6.6m (2020: £4.3m) from the total Group.
· Net cash of £19.4m (2020: £37.0m), which excludes £3.7m of cash
classified as held for sale relating to the disposal of the D&G sales
business.
· Final dividend of 0.27p per share, taking full year dividends to
0.45p per share.
· Return of £5.7m of excess capital to shareholders via share
buybacks.
Commenting on the results, Nic Budden, CEO, said:
"2021 was a good year of progress for Foxtons with revenues, profits and cash
flow significantly ahead of 2019 and 2020. We successfully delivered the first
phase of our growth plan, making strong progress against our core strategic
objectives and are confident of delivering further growth this year and into
the future.
"We extended our leadership position in the London sales and lettings markets,
developed new revenue channels and enhanced cross-sell capabilities by
leveraging our investments in marketing and technology. We are delighted with
the D&G acquisition which has had a materially positive impact on profits.
With increased market share, and the successful integration of acquisitions
driving strong growth in revenue, profits and cash flow, we re-instated the
dividend for the first time since 2017 and bought back £5.7m of shares.
"We have now completed the strategic review of our mortgage broking business,
Alexander Hall, and believe it is in the Group's interests to retain the
business. Alexander Hall intends to increase its financial adviser base, to
fully realise the financial services cross-selling opportunity and grow
profits significantly.
"The sales market remains buoyant, with our current under-offer sales
commission pipeline marginally ahead of 2021, and we have a good pipeline of
potential lettings portfolio acquisitions. We have a clear plan for growth and
are highly focused on delivery."
Strong progress against core objectives
· Organic revenue growth:
- Delivered market share growth across all business areas leveraging
data science to improve conversion.
- Built on high levels of landlord loyalty to deliver 4% organic
growth in our lettings portfolio and 11% organic growth in property management
revenues compared to 2020.
- Developed new revenue channels and enhanced cross-sell capabilities.
Accessed international markets through our Asia Pacific channel, which
delivered £2.7m of revenue in its first full year of operation, and grew
Build to Rent revenues to £2.7m, 69% up against 2020 and 90% up against 2019,
as we build on our London market leadership position.
· Lettings portfolio acquisitions:
- Acquired 2,900 new tenancies through the acquisition of D&G,
with 4% growth in the lettings portfolio during the first 10 months of
ownership to over 3,000 tenancies, delivering £10.0m of revenue and £3.7m of
operating profit to continuing operations.
- D&G lettings portfolio recently integrated into the Foxtons
infrastructure and expected to deliver around £4.0m of operating profit in
2022 through the delivery of further synergies, and a total return on invested
capital in excess of 20%.
· Profit growth:
- 36% increase in branch productivity (average revenue per branch) and
26% increase in employee productivity (average revenue per employee) against
the prior year, reflective of our ongoing people programmes, centralised
infrastructure efficiencies and branch network reach.
- Action taken in 2021 to simplify management structures and introduce
new remuneration schemes in order to drive revenue growth and improved
profitability.
- Embedded our customer data platform to improve customer conversion
and cost per acquisition.
Creating value for all our stakeholders
· The improved trading performance enabled the business to re-instate
the dividend under our policy of returning 35% to 40% of profit after tax
(excluding one-off non-cash items) to shareholders as an ordinary dividend,
and return £5.7m of excess capital to shareholders via share buybacks.
· No use of Government support in 2021, a stable employee base and
record employee engagement levels.
· Partnered with leading national charity, Career Ready, to make a
positive difference to social mobility in our communities. Established an ESG
Committee underscoring our commitment to being a responsible business.
2022 trading update and outlook
In sales, 2022 began with our under-offer sales pipeline marginally ahead of
2021 levels, and significantly up on the pre-pandemic levels, giving us
confidence in a more sustained market recovery. In lettings, London average
rental prices are in line with 2019 levels which we expect to be underpinned
by strong tenant demand as pre-pandemic behaviour returns, including continued
growth in Build to Rent in 2022. We have a good pipeline of further lettings
portfolio acquisitions and expect to invest £8m in 2022 to generate
attractive returns for investors. In mortgage broking, we expect there to be
similar levels of market activity to 2021.
Subject to the geopolitical situation, we expect the trading environment to
remain positive, and will take steps to control costs, despite inflationary
headwinds, and improve productivity. Overall, we have a clear plan for growth
and expect to build on the strong progress made in 2021.
For further information, please contact:
Foxtons Group plc
Richard Harris, Chief Financial Officer +44 20 7893 6261
Muhammad Patel, Investor Relations investor@foxtonsgroup.co.uk (mailto:investor@foxtonsgroup.co.uk)
Sanctuary Counsel
Robert Morgan / Rachel Miller +44 7557 413 275 / +44 7918 606 667
The Company will present a live webcast at 9:00am (GMT) for analysts and
investors. To access you will be required to pre‐register using the
following link:
https://secure.emincote.com/client/foxtons/preliminary-results-2021
(https://secure.emincote.com/client/foxtons/preliminary-results-2021)
The presentation will also be broadcast via conference call. To access you
will be required to pre‐register using the following link:
https://secure.emincote.com/client/foxtons/preliminary-results-2021/vip_connect
(https://protect-eu.mimecast.com/s/uuArCkwOqHOgLLXS9PSqz?domain=secure.emincote.com)
A replay of the presentation will be available shortly afterwards on the
webcast link.
(1)Continuing operations excludes the results of the D&G sales business
which has been classified as a discontinued operation. The D&G sales
business was acquired as part of the acquisition of D&G on 1 March 2021
and subsequently disposed of on 11 February 2022.
( 2)Adjusted operating profit/(loss) is defined as profit/(loss) before tax
for the period before finance income, finance cost, other gains/(losses) and
adjusted items.
(3)Adjusted earnings/(loss) per share is defined as earnings/(loss) 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/(loss) per share.
(4)Total Group includes results from both continuing operations and
discontinued operations. On a total Group basis, revenue was £133.3m and
adjusted operating profit was £7.1m. 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) and purchases of investments.
PERFORMANCE AT A
GLANCE
2021 2020 2021 vs 2020 2019 2021 vs 2019
Income statement (from continuing operations)
Revenue £126.5m £93.5m 35% £106.9m 18%
Adjusted operating profit/(loss)(1) £8.9m £1.9m £7.0m (£0.7m) £9.6m
Adjusted operating profit/(loss) margin(1) 7.1% 2.0% 510bps (0.6%) 770bps
Statutory profit/(loss) before tax £5.6m (£1.4m) £7.0m (£8.8m) £14.4m
Earnings per share (from continuing operations)
Basic and diluted loss per share (0.4p) (1.0p) 0.6p (2.8p) 2.4p
Adjusted basic and diluted earnings/(loss) per share(1) 1.9p (0.2p) 2.1p (1.1p) 3.0p
Dividends
Interim dividend per share 0.18p - n/a - n/a
Final dividend per share 0.27p - n/a - n/a
Cash and cash flow
Net cash(1,2) £19.4m £37.0m (£17.6m) £15.5m £3.9m
Net cash from operating activities(2) £23.5m £14.7m £8.8m £9.8m £13.7m
Net free cash inflow/(outflow)(1,2) £6.6m £4.3m £2.3m (£2.5m) £9.1m
Segmental metrics (from continuing operations)
Lettings revenue £74.3m £57.3m 30% £65.7m 13%
Lettings volumes 22,091 18,595 19% 19,844 11%
Average revenue per lettings transaction £3,365 £3,081 9% £3,313 2%
Sales revenue £42.7m £28.2m 51% £32.6m 31%
Sales volumes 3,122 2,034 53% 2,423 29%
Average revenue per sales transaction £13,668 £13,854 (1%) £13,463 2%
Mortgage broking revenue £9.5m £8.1m 17% £8.5m 11%
Mortgage volumes 4,991 4,361 14% 4,442 12%
Average revenue per mortgage transaction £1,895 £1,853 2% £1,921 (1%)
( )
(1 )These measures are APMs used by the Group and are defined and purpose
explained within Note 15.
(2 )Net cash from operating activities and net free cash flow includes
continuing and discontinued operations. Net cash excludes £3.7m of cash
classified within assets held for sale.
( )
CHAIRMAN'S STATEMENT
I became Chairman of Foxtons on 1 October 2021 following the resignation of my
predecessor Ian Barlow. Prior to agreeing to take on the role I spoke to a
broad range of shareholders, including a number who were dissatisfied with our
performance, to understand their views about the Company. This was a useful
exercise and we have already made changes that respond to some of their
concerns with concrete plans to deliver further improvement in profitability.
The business
Foxtons has a strong brand name, a reputation for sales intensity and
innovation and a distinctive business model. Growing market share is a
priority and it is encouraging that we improved market share in both sales and
lettings for a second consecutive year after a period of decline. There is
more we can do here through the recruitment and training of ambitious young
people and ensuring they are provided with high quality leads from our new
digital marketing and IT platforms. It is therefore our intention to increase
the number of sales negotiators in our branches in order to maximise the
revenue and profit opportunity available to us.
Lettings has consistently performed well with organic growth complemented by
the successful integration of several lettings portfolio acquisitions since
2020. We expect to invest £8m on such acquisitions during the course of 2022.
Lettings adjusted operated profit increased by 41% in 2021 compared to 2020,
with the growth driven by the recently integrated Douglas & Gordon
(D&G) lettings portfolio. With the constructive support of D&G's
management team, the lettings staff have now transferred to Foxtons as
property managers or salespeople in our branches, increasing our talent pool.
We continue to build a pipeline of prospective lettings portfolios to acquire.
Alexander Hall contributed £1.5m to operating profit in 2021, a small
improvement on the resilient prior year. Following a strategic review, we have
decided to retain and invest in the business by growing our financial adviser
base which will enable Alexander Hall to capture more of the financial
services cross sell to our estate agency customers. As we build our adviser
base, we will be investigating options to monetise the leads Alexander Hall
does not yet have the capacity to process.
Costs
While growing revenue is an essential part of Foxtons increased profitability,
the management of cost also has a significant part to play. The three biggest
costs are remuneration, including commissions and bonuses, property and
vehicles. Over the past three years ten branches have been closed which were
not making a sufficient contribution, with a consequent reduction of staff.
The lease obligations which were provided for at the time of closure have
largely been unwound as a result of management action to surrender or sub-let
the leases. There is little scope for further reductions in property costs
until leases expire, most significantly the head office where the lease runs
until 2027.
Senior management staff costs will come down in 2022 as a result of the
streamlining of senior management roles towards the end of 2021. New
remuneration packages have been agreed with the executives and senior managers
that will see a greater proportion of base salaries paid in restricted share
awards. When I became Chairman, I accepted a reduced fee compared to my
successor, one third of which is paid in shares. Future executive and senior
management bonuses will be more directed at financial targets and a greater
weighting will be paid in shares. These changes will significantly improve the
alignment of senior management interests with those of our shareholders.
Over the course of 2021 action has been taken to reduce the cost base and the
intention is to make further savings in 2022 to offset inflationary and other
cost pressures such as increases in business rates and national insurance
contributions. Some shareholders may believe we should be doing more to reduce
costs, but in a people business, I believe it is vital to long term success to
protect our core sales and service capabilities.
Finance
Adjusted operating profit from continuing operations is £8.9m (2020: £1.9m).
The cash balance at the end of the year was £19.4m with net free cash flow of
£6.6m. The Directors have decided to pay a final dividend of 0.27p per share,
making a total in respect of 2021 of 0.45p per share, under our policy of
returning 35% to 40% of profit after tax (excluding one-off non-cash items) in
ordinary dividends. The dividend will be paid, subject to shareholder approval
at the AGM, on 24 June 2022 to shareholders on the register at 13 May 2022. We
continue to monitor our use of capital and, in line with our capital
allocation policy, will return excess cash to shareholders.
Board
As I mentioned earlier, Ian Barlow stepped down as Chairman on 1 October 2021
after having been a Director for eight years. The Board is grateful for his
contribution during a challenging period. Richard Harris will step down as
Chief Financial Officer on 1 April 2022 and will become Chief Financial
Officer of The Rank Group. He has been with Foxtons for three years and has
played a significant part in beginning to turn around the business. Chris
Hough, currently the Group's Director of Finance, will join the Board as Chief
Financial Officer on 1 April 2022.
On 1 December 2021, Peter Rollings joined the Board. Peter was with Foxtons
for 20 years and was Managing Director when he left in 2005. After leaving he
joined Marsh & Parsons as Chief Executive Officer and having built up the
business enabled its successful sale. Peter brings a lot of agency knowledge
to the Board table.
In December 2021, we created the ESG Committee, chaired by Sheena Mackay, a
Non-Executive Director.
Future prospects
As a Board we are determined to put Foxtons back on the front foot. The brand
name remains strong, even if the current share price does not reflect this.
So far this year the attractions of living in London, to both domestic as well
as overseas buyers in the price range where we are strongest, continues to
generate strong demand and we intend to capture this with a larger sales
force. Similarly, lettings, including the recently integrated D&G lettings
business, has made a good start to the year. We have a good pipeline of
further lettings portfolio acquisitions in the wider London area and expect to
invest £8m in such acquisitions during 2022 to generate attractive returns
for investors.
The initiatives we are taking to gain a bigger market share in sales, to
acquire lettings portfolios and to develop the mortgage broking business by
investing in our adviser base, coupled with a tight focus on costs as we are
enter a period of increasing cost pressures, should enable further improvement
in profitability.
Nigel Rich CBE
Chairman
1 March 2022
Chief Executive's review
2021 was a good year of progress for the Group. We delivered growth in all key
areas of the business, with revenue, operating profit and cash flow ahead of
pre-pandemic levels reported for 2019 and 2020. We increased market share,
generated good returns from lettings portfolio acquisitions and rolled out
digital marketing programmes.
Revenue from continuing operations was £126.5m (2020: £93.5m) comprising:
lettings £74.3m (2020: £57.3m, 2019: £65.7m); sales £42.7m (2020: £28.2m,
2019: £32.6m) and mortgage broking £9.5m (2020: £8.1m, 2019: £8.5m).
Adjusted operating profit from continuing operations grew to £8.9m (2020:
£1.9m) demonstrating the operating leverage of the business. In lettings,
D&G contributed £10m of revenue and £3.7m of operating profit since
acquisition in March 2021. In February 2022 we completed the integration of
the D&G lettings business, and as previously announced, simultaneously
disposed of the loss-making D&G sales business, including the cost of all
branches and its head office.
We generated £6.6m of net free cash flow during the year and continue to
maintain a strong balance sheet with no external borrowings and net cash of
£19.4m.
Creating shareholder returns
This performance in 2021 enabled us to reinstate dividends and expand our
share buyback programme, having paid an interim dividend of 0.18p per share
and returned £5.7m to shareholders via share buybacks during the year. Today,
we propose a final dividend of 0.27p per share, taking the full year dividend
to 0.45p per share.
Delivering our strategy
In June, we set out an action plan designed to realise the potential of the
business and deliver significant shareholder value.
We made strong progress against our core objectives in 2021, with market share
growth driving organic revenue and operating leverage resulting in a
significant improvement in profits. We also grew our recurring revenues and
improved our cross-sell performance with over 50% of our sales deals using
cross sell services, which include mortgage broking and conveyancing.
Our strong customer proposition, powerful brand and leading-edge technology
enables us to deliver a level of customer service which is reflected in our
excellent Trustpilot rating where we have received four times as many 5-star
reviews as any other London agent. These differentiators enable us to
substantiate our premium fees and to grow market share in both lettings and
sales.
We are well positioned to further grow profitability in both lettings and
sales during 2022.
In lettings, we have a good track record of making selective acquisitions and
successfully integrating them onto our highly scalable platform. We have grown
our lettings portfolio by over 25% in the last two years, making us London's
largest lettings agent now serving over 25,000 tenancies. We continue to
benefit from good levels of landlord loyalty, with property management
revenues growing organically by 11% in the year.
We saw the continued development of new sales channels in 2021 as we grew our
offering for more specialised customers. Our Asia Pacific Desk leveraged the
reach generated by our bespoke technology and digital marketing capabilities
to transact with customers in the Asia Pacific region, despite the travel
restrictions imposed by Hong Kong and China, and delivered £2.7m of revenue
in its first full year of operation. We continued to drive our leadership
position in the London Build to Rent sector, growing revenues by 69% to £2.7m
in 2021 from new and existing clients, and by extending our service offering
into consulting and professional services. We also created our Foxtons Private
Office sub-brand, a highly bespoke service for customers buying and selling
high value London properties contributing £3.3m of revenue in the year.
Alexander Hall, our mortgage broking business, has continued to perform in
line with expectations. In Q3 2021 we announced we were reviewing strategic
options for the business. We looked at a range of options and have decided to
retain the business. We plan to invest to drive further growth by increasing
our financial adviser base to fully realise the financial services cross sell
opportunity to our estate agency customers.
Estate agency remains a people driven business and our talented employees are
key to delivering against our strategy. We have realised productivity
improvements with revenue per employee increasing by 26% compared to 2020 and
16% compared to 2019, which is reflective of our geared operating model and
ongoing focus on sales intensity. I am also pleased to report an increase in
our diversity and inclusivity score as employees feel we genuinely offer
opportunities to people from all backgrounds and experiences. Our people truly
mirror the communities we serve and are able to provide the highest levels of
customer service.
To help our teams do more of what they do best - giving expert advice - we
continued to invest in our IT infrastructure, customer data platform, and data
science capabilities. We have also partnered with DataRobot, a leading
artificial intelligence platform to build, deploy, and monitor artificial
intelligence and machine learning models at scale to optimise customer
acquisition. In addition, last year we were an early adopter and investor in
the next generation property portal, Boomin, which will be used to drive
greater cross-sell within the Group. We believe Foxtons is already the most
advanced estate agent in the UK when it comes to how we use technology and
data, and these investments further cement our competitive advantage, and
improve how we serve our customers.
Our markets
Despite an extended downturn in sales during the last five years, we have
continued to invest in our differentiators resulting in a stronger business
performance in a buoyant sales market. The stamp duty holiday and changing
consumer requirements helped drive 2021 performance, and although our healthy
under offer pipeline provides some confidence, rising interest rates and
geopolitical risk creates some market uncertainty which our strategy is well
placed to respond to.
The lettings market was also extremely active as tenants took advantage of
lower rents in the early part of 2021 but by year end, rent levels were higher
than pre-pandemic as a consequence of strong demand for a constrained level of
supply.
The mortgage broking market benefited from the strong sales market and
favourable interest rates.
2022 trading update and outlook
In sales, 2022 began with our under-offer sales pipeline marginally ahead of
2021, and significantly up on the pre-pandemic levels. Over the course of the
first two months of the year the under-offer pipeline has continued to build
with homes going under offer despite lower levels of supply in the market.
In lettings, demand continues to outweigh supply, a dynamic which we expect to
underpin strong rents over the course of the year. Build to Rent continues to
grow and our market leadership position in London will see us continue to
capture this growth in 2022. We have a number of lettings portfolios that we
are currently evaluating and anticipate spending £8m on acquisitions during
the course of 2022.
In mortgage broking, we expect there to be continuing good levels of activity
in line with the sales market, although interest rate changes may impact the
level of growth. Over the course of the year we will build our team of
advisers, although it typically takes up to a year for them to become fully
productive. This bodes well for building scale in the business in the medium
term.
Finally, whilst we expect the trading environment to remain positive, and
although our revenue growth plans will drive profitability, we are entering a
period of increasing costs, for example business rates and national insurance
contributions, and so remain very focused on our ongoing efficiency plans to
manage these pressures. Overall, we have a clear plan for growth and expect to
build on the strong progress made in 2021.
Nic Budden
Chief Executive Officer
1 March 2022
Financial review
2021 2020 2019 Change vs Change vs
£m £m £m 2020 2019
Continuing operations
Revenue 126.5 93.5 106.9 35% 18%
Contribution(1) 78.5 58.1 67.1 35% 17%
Contribution margin(1) 62.1% 62.1% 62.7% - (60 bps)
Adjusted operating profit/(loss)(1) 8.9 1.9 (0.7) £7.0m £9.6m
Adjusted operating profit/(loss) margin(1) 7.1% 2.0% (0.6%) 510 bps 770 bps
Profit/(loss) before tax 5.6 (1.4) (8.8) £7.0m £14.4m
Loss after tax (1.3) (3.2) (7.8) £1.9m £6.5m
Net free cash flow and cash position
Net free cash flow (total group)* 6.6 4.3 (2.5) £2.3m £9.1m
Net cash (continuing operations)* 19.4 37.0 15.5 (£17.6m) £3.9m
Dividends
Interim dividend per share (paid) 0.18p - - n/a n/a
Final dividend per share (proposed) 0.27p - - n/a n/a
Financial overview - highlights
(1 )These measures are APMs. APMs are defined, purpose explained and
reconciled to statutory measures within Note 15 of the financial statements.
Note: Throughout this review, amounts in tables may have been rounded and
accordingly may not precisely sum to the total amounts expressed in such
tables.
Revenue from continuing operations increased by 35% to £126.5m (2020:
£93.5m), with revenue from lettings up 30%, revenue from sales up 51%, and
revenue from mortgage broking up 17% compared to 2020.
Adjusted operating profit from continuing operations increased by £7.0m to
£8.9m (2020: £1.9m), driven by strong revenue growth across all segments. In
the ten months since acquisition, D&G lettings contributed £10.0m of
revenue and £3.7m of operating profit. Profit before tax from continuing
operations was £5.6m (2020: £1.4m loss) and loss after tax was £1.3m (2020:
£3.2m) mainly due to a £6.1m non-cash deferred tax accounting re-measurement
required due to the UK corporation tax rate increasing from 19% to 25%
(effective from 1 April 2023).
On a total Group basis, which includes both continuing and discontinued
operations, £6.6m of net free cash flow was generated. The Group continues
to have access to a £5.0m revolving credit facility (RCF) which has been
extended in the year (June 2024 expiry) and remained undrawn throughout the
year. Net cash relating to the continuing business was £19.4m (2020:
£37.0m), which excludes £3.7m of cash classified within assets held for
sale.
Revenue (from continuing operations)
The Group consists of three operating segments: Lettings, sales and mortgage
broking. Narrative explaining segmental revenue performance against 2020
follows.
2021 2020 2019 Change Change
vs 2020
vs 2019
From continuing operations £m £m £m
Lettings 74.3 57.3 65.7 30% 13%
Sales 42.7 28.2 32.6 51% 31%
Mortgage broking 9.5 8.1 8.5 17% 11%
Total 126.5 93.5 106.9 35% 18%
Lettings revenue
Lettings revenues increased by 30% to £74.3m (2020: £57.3m) and average
revenue per lettings transaction was up 9% to £3,365 (2020: £3,081), with
D&G lettings contributing £10.0m of revenue since acquisition in March
2021. Excluding D&G, lettings revenue was 12% up which is reflective of a
3% increase in average rental prices, increased volumes driven by increased
market activity and market share gains, growth in our property management
revenues and Build to Rent business.
Sales revenue
Sales revenue increased by 51% to £42.7m (2020: £28.2m) driven by 53% higher
volumes in 2021 compared to 2020 reflective of market share gains in a buoyant
sales market that benefited from stamp duty relief. The average revenue per
transaction was £13,668 or 1% lower (2020: £13,854) and the average price of
properties sold increased marginally to £577k (2020: £574k).
Mortgage broking revenue
Mortgage broking revenue increased by 17% to £9.5m (2020: £8.1m), the
increase primarily reflecting growth in new mortgages driven by increased
sales volumes noted above.
Contribution and contribution margin (from continuing operations)
Contribution is defined as revenue less direct salary costs of front office
staff and bad debt charges. Group contribution increased to £78.5m (2020:
£58.1m) compared to 2020 as a result of increased revenue with a consistent
contribution margin.
2021 2020 2019
From continuing operations
£m margin £m margin £m margin
Lettings 51.7 69.5% 40.2 70.2% 46.6 70.9%
Sales 22.8 53.4% 14.1 50.0% 16.4 50.4%
Mortgage broking 4.1 42.9% 3.8 46.8% 4.0 47.2%
Total 78.5 62.1% 58.1 62.1% 67.1 62.7%
Adjusted operating profit and adjusted operating profit margin (from continuing operations)
Adjusted operating profit for the period was £8.9m (2020: £1.9m), reflective
of increased revenue in the year, including a £10.0m revenue contribution
from D&G, and continued focus on cost control. For the purposes of
segmental reporting, shared costs are allocated between the lettings business
and the sales business with reference to relative headcount.
2021 2020 2019
From continuing operations
£m margin £m margin £m margin
Lettings 8.9 12.0% 6.3 11.1% 4.2 6.4%
Sales (1.5) (3.5%) (5.8) (20.8%) (6.3) (19.2%)
Mortgage broking 1.5 16.3% 1.4 17.6% 1.4 16.0%
Total 8.9 7.1% 1.9 2.0% (0.7) (0.6%)
Adjusted operating profit is after charging direct operating costs of £47.9m
(2020: £35.4m) and other operating costs of £71.0m (2020: £57.3m),
including a £1.5m voluntary repayment of business rates. Other operating
costs include the following non-cash charges:
· Depreciation of £12.2m (2020: £11.9m);
· Amortisation of £1.4m (2020: £0.8m), including £0.9m (2020:
£0.3m) relating to acquired intangibles; and
· Share-based payment charges of £1.6m (2020: £1.0m).
Profit/(loss) before tax (from continuing operations)
2021 2020 2019
From continuing operations £m £m £m
Adjusted operating profit/(loss) 8.9 1.9 (0.7)
Less: adjusted items (1.4) (1.1) (5.7)
Operating profit/(loss) 7.6 0.8 (6.3)
Less: Net finance costs and other losses (2.0) (2.2) (2.5)
Profit/(loss) before tax 5.6 (1.4) (8.8)
Adjusted operating profit excludes net adjusted item charges of £1.4m (2020:
£1.1m) classified in line with the Group's accounting policy . The net
charges comprises: £0.6m of acquisition related costs; £0.5m of
reorganisation costs; £0.7m impairment of an associate and £0.4m of net
property related credits primarily relating to provision/lease liability
remeasurement. Net finance costs of £2.0m (2020: £2.2m) relate to interest
charges on lease liabilities.
Loss after tax (from continuing operations)
2021 2020 2019
From continuing operations £m £m £m
Profit/(loss) before tax 5.6 (1.4) (8.8)
Less: current tax (charge)/credit (0.5) 0.3 0.3
Less: deferred tax charge (due to UK corporation tax rate change) (6.1) (1.8) -
Less: deferred tax (charge)/credit (other) (0.3) (0.3) 0.7
Loss after tax (1.3) (3.2) (7.8)
The loss after tax of £1.3m (2020: £3.2m) is after a total tax charge of
£6.9m, of which £6.4m relates to non-cash deferred tax accounting charges
and £0.5m relates to current tax. £6.1m of the deferred tax accounting
charge is due to a non-cash accounting re-measurement required as a result of
the UK corporation tax rate increasing from 19% to 25% (effective from 1 April
2023).
The effective tax rate for the period was 124.1% (2020: (135.3%)) which
compares to the statutory corporation tax rate of 19.0% (2020: 19.0%). The
main driver affecting the effective tax rate is the £6.1m deferred tax
accounting re-measurement noted above.
The Group's net deferred tax liability at 31 December 2021 totalled £24.8m
(2020: £17.5m), which includes £26.5m (2020: £19.4m) of deferred tax
liabilities relating to the Group's intangible assets, offset by deferred tax
assets of £1.7m (2020: £1.9m). The deferred tax assets relate to tax
losses brought forward to the extent it is probable the assets will 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 no tax refunds during the year (2020: £0.2m).
Earnings per share (from continuing operations)
From continuing operations 2021 2020 2019
£m £m £m
Loss after tax (1.3) (3.2) (7.8)
Add back: adjusted items (net of tax) 1.5 0.9 4.7
Add back: deferred tax (due to UK corporation tax rate change) 6.1 1.8 -
Adjusted earnings/(loss) for the purposes of adjusted earnings/(loss) per 6.2 (0.5) (3.1)
share
6.2
(0.5)
(3.1)
Loss per share (basic and diluted) (0.4p) (1.0p) (2.8p)
Adjusted earnings/(loss) per share (basic and diluted) 1.9p (0.2p) (1.1p)
On a continuing operations basis, loss per share (basic and diluted) was 0.4p
with the loss driven by a £6.1m non-cash deferred tax re-measurement
accounting charge. On an adjusted basis, which excludes adjusted item charges
of £1.5m and the £6.1m deferred tax re-measurement charge, earnings per
share (basic and diluted) was 1.9p.
Net cash and net free cash flow
The Group held net cash, excluding lease liabilities and £3.7m of cash
classified as held for sale, of £19.4m (2020: £37.0m) with no external
borrowing (2020: nil).
2021 2020 2019
From continuing and discontinued operations £m £m £m
Operating cash inflow before movements in working capital 22.0 15.1 12.2
Working capital inflow/(outflow) 1.7 (0.6) (2.6)
Income taxes (paid)/refund (0.2) 0.2 0.2
Net cash from operating activities 23.5 14.7 9.8
Repayment of IFRS 16 lease liabilities (15.2) (10.0) (12.0)
Net cash used in investing activities(1) (1.6) (0.4) (0.3)
Net free cash inflow/(outflow) 6.6 4.3 (2.5)
1. Excludes £11.5m (2020: £3.8m) of cash outflows relating to the
acquisition of subsidiaries (net of any cash acquired) and £3.0m related to
the purchase of investments (2020: £nil).
Net free cash flow, from continuing and discontinued operations, of £6.6m
(2020: £4.3m), was driven by increased profitability, partly offset by
£15.2m of lease liability payments, including £2.3m of previously deferred
lease payments, and £1.9m of net capital expenditure driven by IT and branch
investments.
Acquisitions
On 1 March 2021, the Group acquired the entire issued share capital of Douglas
& Gordon Estate Agents Limited, a high-quality London estate agent with a
large lettings business typically delivering around 65% of total revenues from
2,900 tenancies. Gross purchase consideration was £15.5m with £13.9m paid in
March 2021, £1.1m paid in July 2021 and £0.5m of contingent cash
consideration paid in March 2022. Consideration paid in 2021, net of cash
acquired, was £11.1m.
Acquired net assets were fair valued at the date of acquisition and include
£5.4m of customer contracts and relationships and £6.3m of acquired
goodwill. The acquisition contributed a total of £16.8m of revenue and £1.9m
of adjusted operating profit during the Group's first ten months of ownership,
of which £10.0m of revenue and £3.7m of adjusted operating profit relates to
continuing operations.
Discontinued operations
From discontinued operations 2021 2020 2019
£m £m £m
Revenue 6.8 - -
Adjusted operating loss (1.8) - -
Less: adjusted items (3.2) - -
Operating loss (5.1) - -
Loss after tax (4.8) - -
Discontinued operations relates to the D&G sales business which was
acquired alongside the D&G lettings business, as part of the acquisition
of D&G on 1 March 2021. In the first 10 months of ownership, the D&G
sales business generated £6.8m of revenue, a £1.8m adjusted operating loss
and a £4.8m loss after tax. The loss after tax includes an impairment charge
of £3.2m, classified as an adjusted item, following the revaluation of the
disposal group net assets to nil fair value reflecting the nominal
consideration received. In November 2021 the Board approved the disposal of
the D&G sales business and the simultaneous integration of the D&G
lettings business into the Foxtons infrastructure. D&G sales was
classified as held for sale in November 2021 and disposed of on 11 February
2022 to its CEO, James Evans, having been approved by shareholders at the
General Meeting held on 10 February 2022.
The integration of the lettings business into the Foxtons network is expected
to deliver the synergies identified at the time of the original D&G
acquisition, with the D&G lettings portfolio expected to deliver operating
profit of around £4.0m in 2022. This is an increase of over £2.0m on the
operating profit contributed by the whole D&G business in 2021 and is in
line with our expectation at the time of the acquisition that it would be
materially earnings enhancing.
On a total Group basis, which includes both continuing and discontinued
operations, revenue was £133.3m (2020: £93.5m) and adjusted operating profit
was £7.1m (2020: £1.9m).
Other balance sheet positions
At 31 December the significant balance sheet positions were:
· Goodwill of £17.7m (2020: £11.4m) and other intangible assets of
£107.3m (2020: £103.5m), with the increase due to the acquisition of D&G
which contributed £6.3m of goodwill and £5.4m of intangible assets.
· Interest in associate and investments of £3.3m (2020: £1.2m), with
the increase reflecting a £3.0m investment in PD Innovations Limited, trading
as Boomin, and a £1.0m disposal of an interest in Propoly.
· Trade and other receivables of £16.0m (2020: £13.9m) and trade
and other payables of £14.5m (2020: £10.3m).
· Held for sale assets of £7.4m (2020: nil) and held for sale
liabilities of £7.4m (2020: nil) relating to the D&G sales business
disposal group. Held for sale assets include £3.7m of cash.
· Total contract assets of £4.6m (2020: £2.0m) and total contract
liabilities of £9.4m (2020: £8.7m), with the increase in the contract asset
driven by the acquisition of D&G.
· Lease liabilities of £48.1m (2020: £51.6m) and right-of-use
assets of £43.8m (2020: £44.4m).
Capital allocation and Dividends
Beyond working capital needs we use our cash to continue to fund investment in the organic development of the business, both people and technology, and to prioritise lettings portfolio acquisitions. The Group's ordinary dividend policy is to return 35% to 40% of profit after tax (excluding one-off non-cash items) to shareholders as an ordinary dividend, with excess cash after operational requirements and investments distributed to shareholders.
As shown below, the total Group made a profit after tax of £3.6m after
excluding £3.7m of non-cash adjusted items and the £6.1m non-cash deferred
tax accounting re-measurement (required due to the UK corporation tax rate
increasing from 19% to 25%).
From continuing and discontinued operations 2021
£m
Loss after tax (continuing operations) (1.3)
Loss after tax (discontinued operations) (4.8)
Loss after tax (total Group) (6.2)
Add back: non-cash adjusted items (net of tax) 3.7
Add back: deferred tax charges (due to UK corporation tax rate change) 6.1
Profit after tax for dividend policy (total Group) 3.6
3.6
Interim dividend (paid) 0.18p per share
Final dividend (proposed) 0.27p per share
0.27p per share
An interim dividend of 0.18p per share was paid in September 2021. The Board
has proposed a final dividend of 0.27p per share bringing the total ordinary
dividend for the year to 0.45p per share (2020: nil). The proposed dividend
will be paid, subject to shareholders approval at the AGM in June 2022, on 24
June 2022 to shareholders on the register at 13 May 2022. The shares will be
quoted ex-dividend on 12 May 2022.
Capital returns
A total of £5.7m (2020: £0.3m) of shares have been bought back to return
excess capital to shareholders. £2.7m shares were bought back through the
programme announced in December 2020 and £3.0m through the programme
announced in July 2021. Over the course of 2020 and 2021 a total of £6.0m of
shares have been bought back.
Post balance sheet events and Related partY transactions
On 14 January 2022 the Group announced the simultaneous disposal of the
D&G sales business, including all of its branches, and the integration of
the D&G lettings business into the Foxtons infrastructure. The D&G
sales business was disposed of on 11 February 2022 for nominal consideration
to its CEO, James Evans, following shareholder approval at a General Meeting
on 10 February 2022. £3.7m of cash was left in the business to cover working
capital requirements and retained liabilities, which would otherwise have had
to be incurred by the Group.
Shareholder approval was required due to James Evans being a Director of
D&G, a subsidiary undertaking of the Group prior to the disposal, and he
therefore constituted a related party to the Group under Chapter 11 of the
Listing Rules. Therefore, as required by the Listing Rules, the disposal
required approval by shareholders at a General Meeting.
Under the terms of the disposal, D&G will operate under restrictive
covenants which protect the lettings portfolio retained by the Group,
including existing customer contracts and relationships, and the employees
that have transferred to Foxtons.
Treasury policies and objectives
The Group's treasury policy is designed to reduce financial risk. Financial
risk for the Group is low as the Group is in a net cash position, 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. The Group has access
to a £5.0m RCF which has been extended to June 2024 and remains undrawn.
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 15 and
16 for details of the Group's risk management framework and principal risks
and uncertainties.
Going concern, prospects and viability
The financial statements of the Group have been prepared on a going concern
basis as the Directors have satisfied themselves that, at the time of
approving the financial statements, the Group will have adequate resources to
continue in operation for a period of at least 12 months from the date of
approval of the financial statements. Furthermore, the Directors have a
reasonable expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over a five-year viability period.
Refer to Note 1 of the financial statements for details of the Group's going
concern assessment.
Richard Harris
Chief Financial Officer
1 March 2022
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 which analyse overall corporate risk, information technology risk
and mortgage broking risk. Other committees exist below this level to focus on
specific risk areas. A common risk register is used across the Group to
monitor gross and residual risk, with the results being assessed by the 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.
External risks
Risk Impact on the Group
Market risk Although there have been improvements in the sales market, transaction levels
continue to be below historical levels. The key factors driving market risk
are:
· affordability, which in turn may reduce transaction levels;
· arguably a reduction in London's standing as a major financial
city caused by the macro-economic and political environment;
· the market being reliant on the availability of mortgage finance,
a deterioration in availability or an increase in borrowing rates may
adversely affect the Group;
· the market being impacted by changes in Government policy such as
future changes in stamp duty taxes or increased regulation in the lettings
market. In 2021, stamp duty relief provided stimulus to the sales market and
associated market transactions; and
· geopolitical risk which may increase market uncertainty and
customer confidence.
Covid-19 Although 2021 transaction volumes have recovered at above pre-pandemic levels,
Covid-19 has introduced additional market and operational risk. Key elements
of the risk include:
· continuing negative impact on the UK economy and consumer
confidence which may adversely impact residential property sales transaction
levels or rental levels in the medium term;
· although the risk is reducing as the vaccine and booster
programme progresses, there remains a risk the Group's offices and branches
may have to temporarily close, property viewings could be required to switch
to virtual viewings, and customer-facing activities could be restricted due to
lockdowns; and
· there is an ongoing Covid-19 health and safety risk which has to
be carefully and responsibly managed to ensure the ongoing safety of our
employees and customers.
Competitor challenge The Group operates in a highly competitive marketplace. New or existing
competitors could develop new technology, services or methods of working,
including online and hybrid agents, 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 mortgage
broking business is authorised and regulated by the FCA and could be subject
to sanctions for non-compliance.
Internal risks
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. 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 The Group's reputation and brand may be impacted from both a customer
perspective and an investor perspective:
Customer perspective:
Foxtons is a strong, single-network brand with a reputation for delivering
exceptional service as well as the highest brand awareness in London estate
agency. Our reputation and brand provide competitive advantage and are
critical to maintaining and 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.
Investor perspective:
During 2021, there has been challenge from activist investors which has led to
increased levels of adverse media coverage.
Although there has been little impact on customer sentiment or satisfaction,
such coverage can negatively impact broader investor relations and activity.
Forward looking statements
This preliminary announcement contains certain forward-looking statements with
respect to the financial condition and results of operations of Foxtons Group
plc. These statements and forecasts involve risk and uncertainty because they
relate to events and depend upon circumstances that will occur in the future.
There are a number of factors that could cause actual results or developments
to differ materially from those expressed or implied by these forward-looking
statements and forecasts. The forward-looking statements are based on the
Directors' current views and information known to them at 1 March 2022. The
Directors do not make any undertakings to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise. Nothing in this statement should be construed as a profit forecast.
Responsibility statement
The following statement will be contained in the 2022 Annual Report and
Accounts.
Each of the Directors confirms that to the best of their knowledge:
· the consolidated and Parent Company financial statements,
prepared in accordance with the relevant financial reporting framework, give a
true and fair view of the assets, liabilities, financial position and loss of
the Group and the undertakings included in the consolidation taken as a whole;
· the Strategic Report and the Directors' Report include a fair
review of the development and performance of the business and the position of
the Group and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that it
faces; and
· the Directors confirm that the Annual Report and Accounts, taken
as a whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Group's position and performance,
business model and strategy.
On behalf of the Board
Nic Budden Richard Harris
Chief Executive Officer Chief Financial Officer
1 March 2022 1 March 2022
CONSOLIDATED STATEMENT OF INCOME STATEMENT
For the year ended 31 December 2021
Continuing operations Notes 2021 2020
£'000
£'000
Revenue 2 126,475 93,550
Direct operating costs (47,933) (35,449)
Other operating costs (70,954) (57,254)
Operating profit 7,588 847
Other losses (26) (37)
Finance income 37 111
Finance costs (2,046) (2,277)
Profit/(loss) before tax from continuing operations 5,553 (1,356)
Tax charge 4 (6,893) (1,835)
Loss for the year from continuing operations (1,340) (3,191)
Discontinued operations
Loss after tax for the year from discontinued operations 5 (4,826) -
Loss for the year attributable to shareholders of the Company (6,166) (3,191)
Earnings/(loss) per share
From continuing operations
Basic and diluted loss per share 7 (0.4p) (1.0p)
( )
( )
Adjusted results
( )
From continuing operations
Adjusted operating profit(1) 2 8,942 1,904
Adjusted earnings/(loss) for the purposes of adjusted earnings/(loss) per 7 6,176 (521)
share(2)
Adjusted basic and diluted earnings/(loss) per share(2) 7 1.9p (0.2p)
( )
(1) Adjusted operating profit is an APM and is reconciled to statutory loss
before tax in Note 2. Adjusted operating profit from continuing operations is
presented before charging £1.4m of adjusted items (2020: £1.1m) as set out
in Note 3.
(2 )Adjusted earnings/(loss) for the purposes of adjusted earnings/(loss) per
share from continuing operations is presented before charging £1.5m of
adjusted items including associated tax charges (2020: £0.9m) and £6.1m of
non-cash deferred tax accounting re-measurement charges (2020: £1.8m), as set
out in Note 7.
(3) Adjusted basic and diluted earnings/(loss) per share is an APM and is
reconciled to statutory earnings/(loss) per share in Note 7.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2021
Notes 2021 2020
£'000
£'000
Loss for the year attributable to shareholders of the Company (6,166) (3,191)
Other comprehensive income:
Items that will not be reclassified to profit or loss (net of tax):
Changes in fair value of equity instruments at FVOCI 40 -
Other comprehensive income for the period 40 -
Total comprehensive loss for the period (6,126) (3,191)
Total comprehensive loss attributable to shareholders of the Company arising
from:
Continuing operations (1,340) (3,191)
Discontinued operations (4,786) -
(6,126) (3,191)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
Notes 2021 2020
£'000
£'000
Non-current assets
Goodwill 8 17,716 11,420
Other intangible assets 8 107,269 103,542
Property, plant and equipment 9,652 10,548
Right-of-use assets 9 43,832 44,444
Contract assets 899 350
Interest in associate and investments 3,317 1,237
Deferred tax assets 1,744 1,904
184,429 173,445
Current assets
Trade and other receivables 16,011 13,866
Contract assets 3,657 1,653
Current tax assets 303 76
Cash and cash equivalents 19,374 36,984
Assets classified as held for sale 7,412 -
46,757 52,579
Total assets 231,186 226,024
Current liabilities
Trade and other payables (14,485) (10,309)
Current tax liabilities - -
Lease liabilities 9 (8,825) (10,849)
Contract liabilities (8,231) (7,659)
Provisions (342) (367)
Liabilities classified as held for sale (7,412) -
(39,295) (29,184)
Net current assets 7,462 23,395
Non-current liabilities
Lease liabilities 9 (39,258) (40,709)
Contract liabilities (1,141) (1,080)
Provisions (1,486) (1,216)
Deferred tax liabilities (26,504) (19,379)
(68,389) (62,384)
Total liabilities (107,684) (91,568)
Net assets 123,502 134,456
Equity
Share capital 11 3,301 3,301
Merger reserve 12 20,568 20,568
Other reserves 12 2,653 2,653
Own shares reserve (6,059) (374)
Retained earnings 103,039 108,308
Total equity 123,502 134,456
The financial statements of Foxtons Group plc, registered number 07108742,
were approved by the Board of Directors on 1 March 2022. Signed on behalf of
the Board of Directors
Richard Harris
Chief Financial Officer
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
Notes Share Merger reserve Other reserves Own Retained earnings Total
capital
£'000
£'000
shares reserve
£'000
equity
£'000
£'000
£'000
Balance at 1 January 2021 3,301 20,568 2,653 (374) 108,308 134,456
Loss for the year attributable to shareholders of the Company - - - - (6,166) (6,166)
Other comprehensive income for the year - - - - 40 40
Dividends 6 - - - - (583) (583)
Own shares acquired in the period - - - (5,697) - (5,697)
Credit to equity for share-based payments - - - - 1,452 1,452
Settlement of share incentive plan - - - 12 (12) -
Balance at 31 December 2021 3,301 20,568 2,653 (6,059) 103,039 123,502
Notes Share Merger reserve Other reserves Own Retained earnings Total
capital
£'000
£'000
shares reserve
£'000
equity
£'000
£'000
£'000
Balance at 1 January 2020 2,751 - 2,653 (56) 110,433 115,781
Loss for the year attributable to shareholders of the Company - - - - (3,191) (3,191)
Other comprehensive income for the year - - - - - -
Dividends 6 - - - - - -
Share issuance 11 550 20,568 - - - 21,118
Own shares acquired in the period - - - (318) - (318)
Credit to equity for share-based payments - - - - 1,066 1,066
Balance at 31 December 2020 3,301 20,568 2,653 (374) 108,308 134,456
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2021
Notes 2021 2020
£'000
£'000
Operating activities
Operating profit from continuing operations 2 7,588 847
Operating loss from discontinued operations 2, 5 (5,051) -
Operating profit from continuing and discontinued operations 2,537 847
Adjustments for:
Depreciation of property, plant and equipment and right-of-use assets 13,047 11,945
Amortisation of intangible assets 8 1,652 847
Held for sale impairment 5 3,227 -
Branch asset impairment 3 468 1,661
Interest in associate impairment 3 681 -
Gain on disposal of property, plant and equipment and right-of-use assets (1,367) (460)
Increase/(decrease) in provisions 245 (792)
Share-based payment charges 1,471 1,046
Operating cash flows before movements in working capital 21,961 15,094
Increase in receivables (2,062) (620)
Increase in payables 3,756 6
Cash generated by operations 23,655 14,480
Income taxes (paid)/received (179) 192
Net cash from operating activities 23,476 14,672
Investing activities
Interest received 15 68
Proceeds on disposal of property, plant and equipment 154 220
Proceeds on disposal of interest in associate and investments 160 57
Purchases of property, plant and equipment (1,976) (630)
Purchases of intangibles 8 (2) (88)
Purchases of investments (3,000) -
Acquisition of subsidiaries (net of cash acquired) 10 (11,451) (3,768)
Net cash used in investing activities (16,100) (4,141)
Financing activities(1)
Dividends paid 6 (583) -
Interest paid (21) (61)
Repayment of lease liabilities 9 (15,228) (10,015)
Sub-lease receipts 258 299
Purchase of own shares (5,697) (318)
Net proceeds from issue of ordinary share capital 11 - 21,117
Proceeds from external borrowings - 5,000
Repayment of external borrowings - (5,050)
Net cash (used in)/generated in financing activities (21,271) 10,972
Net (decrease)/increase in cash and cash equivalents (13,895) 21,502
Cash and cash equivalents at beginning of year(2) 36,984 15,482
Cash and cash equivalents at end of year(2) 23,089 36,984
Comprised of:
Cash and cash equivalents at end of the year (continuing operations) 19,374 36,984
Cash included in assets held for sale at end of the year (discontinued 3,715 -
operations)
(1) All liabilities associated with financing activities are in relation to
IFRS 16 lease liabilities, as no external borrowings have been drawn down or
repaid during the year. Refer to Note 9 for a reconciliation of lease
liabilities.
(2 )Total Group balances, which include continuing and discontinued
operations.
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies, judgements and estimates
1.1 General information
Foxtons Group plc ('the Company') is a company incorporated in the United
Kingdom under the Companies Act. The address of the Company's registered
office is Building One, Chiswick Park, 566 Chiswick High Road, London W4 5BE.
The principal activity of the Company and its subsidiaries (collectively, 'the
Group') is the provision of services to the residential property market in the
UK.
These financial statements are presented in pounds sterling which is the
currency of the primary economic environment in which the Group operates.
1.2 Basis of preparation
The consolidated preliminary results of the Company for the year ended 31
December 2021 comprise the Company and its subsidiaries.
The consolidated preliminary results of the Group for the year ended 31
December 2021 were approved by the Directors on 1 March 2022. These
consolidated preliminary results have been prepared in accordance with the
accordance with UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to companies reporting
under those standards. They do not include all the information required for
full annual financial statements to comply with UK-adopted International
Accounting Standards, and should be read in conjunction with the consolidated
financial statements of the Group as at and for the year ended 31 December
2021.
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in the Financial
Review. The Financial Review also includes a summary of the Group's financial
position and its cash flows.
The financial information for the year ended 31 December 2021 does not
constitute statutory accounts as defined in sections 435 (1) and (2) of the
Companies Act 2006. The auditor has reported on these accounts; their report
was unqualified, did not include a reference to any matters to which the
auditor drew attention by way of emphasis of matter and did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2020 have been delivered to
the Registrar of Companies and those for 2021 will be delivered following the
Company's 2022 Annual General Meeting.
1.3 Going concern
Going concern assessment
The financial statements of the Group have been prepared on a going concern
basis as the Directors have satisfied themselves that, at the time of
approving the financial statements, the Group will have adequate resources to
continue in operation for a period of at least 12 months from the date of
approval of the consolidated financial statements. The assessment has taken
into consideration the Group's financial position, liquidity requirements,
recent trading performance and the outcome of reverse stress testing which
determines the point at which the Group could be considered to fail without
taking further mitigating actions or raising additional funds. At 31 December
2021, the Group held a cash and cash equivalents balance relating to
continuing operations of £19.4m (31 December 2020: £37.0m), had no external
borrowings and an undrawn £5.0m rolling credit facility (RCF) which has been
extended in the year and expires in June 2024.
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 deterioration in market
conditions, with specific consideration given to the ongoing impact of
Covid-19.
The reverse stress scenario incorporates a severe reduction in trading from
March 2022 to October 2022 against plan, approximately 1.7 times more severe
than that experienced from March 2020 to October 2020 during the spring 2020
Covid-19 lockdown and recovery period.
In the unlikely event of the reverse stress scenario, the Group would have a
negative cash position in May 2023, assuming the RCF facility is not available
due to covenants being breached. Under such a scenario, additional mitigating
action could be taken to protect liquidity such as raising additional funds,
seeking agreement to defer lease payments and further reducing discretionary
spend.
The Group expects the RCF to be available throughout the going concern review
period with ongoing compliance with the RCF's covenants. The going concern
assumption is not dependent on the availability of the RCF.
1.4 Critical accounting judgements and key sources of
estimation uncertainty
The critical accounting judgements and key sources of estimation uncertainty
within these consolidated preliminary results are the same as those within the
2021 Annual Report and Accounts: 'Useful economic life of the brand intangible
asset' and 'impairment of intangibles with an indefinite life'.
2. Business and geographical segments
Products and services from which reportable segments derive their revenues
Management has determined the operating segments based on the monthly
management pack reviewed by the Directors, which is used to assess both the
performance of the business and to allocate resources within the entity.
Management has identified that the Directors are the chief operating decision
makers in accordance with the requirements of IFRS 8 'Operating Segments'.
The operating and reportable segments of the Group are (i) lettings, (ii)
sales; and (iii) mortgage broking.
(i) Lettings generates commission from the letting and management of
residential properties and income from interest earned on tenants' deposits.
(ii) Sales generates commission on sales of residential property.
(iii) Mortgage broking generates commission from the arrangement of
mortgages and related products under contracts with financial service
providers and receives administration fees from clients.
Since the lettings and sales segments operate out of the same premises and
share support services, a significant proportion of costs have to be
apportioned between the segments. The basis of apportionment is headcount in
each segment.
All revenue for the Group is generated from within the UK and there is no
intra-group revenue.
Segment assets and liabilities and additions to non-current assets, are not
reported to the Directors on a segmental basis and are therefore not
disclosed. Goodwill and intangible assets have been allocated to reportable
segments as described in Note 8.
Adjusted operating profit and adjusted operating profit margin
Adjusted operating profit represents the profit before tax for the period
before adjusted items (defined below), finance income, finance cost and other
gains/losses. As explained in Note 15, this measure is used by the Directors
for the purpose of resource allocation and assessment of segment performance.
Adjusted operating profit margin is used to measure the delivery of the
Group's strategic priorities.
Adjusted items
Adjusted operating profit, adjusted operating profit margin and adjusted
earnings per share, exclude adjusted items. Adjusted items include costs or
revenues which due to their size and incidence require separate disclosure in
the financial statements to reflect management's view of the underlying
performance of the Group and allow comparability of performance from one
period to another. Items include restructuring and impairment charges,
significant acquisition costs and any other significant exceptional items.
Refer to Note 3 for further information of the adjusted items recognised in
the period.
Segment revenues and results
The following is an analysis of the Group's continuing operations results by
reportable segment for the year ended 31 December 2021:
Continuing operations Lettings £'000 Sales Mortgage broking £'000 Consolidated £'000
£'000
2021 Notes
Revenue 74,342 42,673 9,460 126,475
Contribution 15 51,685 22,799 4,058 78,542
Contribution margin 15 69.5% 53.4% 42.9% 62.1%
Adjusted operating profit/(loss) 15 8,904 (1,501) 1,539 8,942
Adjusted operating profit/(loss) margin 15 12.0% (3.5%) 16.3% 7.1%
Adjusted items 3 (1,354)
Operating profit 7,588
Other losses (26)
Finance income 37
Finance cost (2,046)
Profit before tax from continuing operations 5,553
The following is an analysis of the Group's results split by continuing and
discontinued operations for the year ended 31 December 2021:
Continuing operations Discontinued operations Total Group
2021 £'000 £'000 £'000
Revenue 126,475 6,842 133,317
Contribution 78,542 3,992 82,534
Contribution margin 62.1% 58.3% 61.9%
Adjusted operating profit/(loss) 8,942 (1,824) 7,118
Adjusted operating profit/(loss) margin 7.1% (26.7%) 5.3%
Adjusted items (1,354) (3,227) (4,581)
Operating profit/(loss) 7,588 (5,051) 2,537
Other losses (26) - (26)
Finance income 37 1 38
Finance cost (2,046) (151) (2,197)
Profit/(loss) before tax 5,553 (5,201) 352
Other information
Lettings Sales Mortgage broking £'000 Consolidated £'000
£'000 £'000
Depreciation and amortisation
Continuing operations (8,192) (5,276) (119) (13,587)
Discontinued operations - (1,112) - (1,112)
Group total (8,192) (6,388) (119) (14,699)
The following is an analysis of the Group's continuing operations results by
reportable segment for the year ended 31 December 2020:
Continuing operations Lettings £'000 Sales Mortgage broking £'000 Consolidated £'000
£'000
2020 Notes
Revenue 57,291 28,180 8,079 93,550
Contribution 15 40,241 14,079 3,781 58,101
Contribution margin 15 70.2% 50.0% 46.8% 62.1%
Adjusted operating profit/(loss) 15 6,335 (5,849) 1,418 1,904
Adjusted operating profit/(loss) margin 15 11.1% (20.8%) 17.6% 2.0%
Adjusted items 3 (1,057)
Operating profit 847
Other losses (37)
Finance income 111
Finance cost (2,277)
Loss before tax from continuing operations (1,356)
Other information
Depreciation and amortisation from continuing operations (7,645) (5,026) (121) (12,792)
For the year ended 31 December 2020 no operations were classified as
discontinued operations.
3. Adjusted items
Adjusted operating profit, adjusted operating profit margin and adjusted loss
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.
2021 2020
£'000 £'000
Property related credit(1) (908) (1,078)
Branch asset impairment charge(2) 468 1,661
Impairment of interest in associate(3) 681 -
Transaction related costs(4) 633 -
Reorganisation costs 480 474
1,354 1,057
(1 )Property related credit relates to a re-estimation of the provision for
adjusted items resulting in a charge of £612k (2020: £831k), £1,404k credit
from net gain on the disposal and/or lease modifications of IFRS 16 balances
relating to vacant branches (2020: £247k) and £116k (2020: £nil) of other
income.
(2 )The branch impairment charge relates to plant, property and equipment
£181k (2020: £500k) and right-of-use assets £287k (2020: £1,161k).
(3) The impairment of interest in associate relates to an impairment of the
carrying value of an interest in associate.
(4) Transaction related costs relate to costs involved with the acquisition of
D&G, and subsequent disposal of the D&G Sales business.
Net cash outflow from adjusted items during the year totalled £1.0m (2020:
£0.8m). Future cash outflows from adjusted items charged between 2018 and
2021 are expected to total £2.2m.
4. Taxation
Recognised in the Group income statement
The components of the tax charge/(credit) recognised in the Group income
statement are:
2021 2020
£'000 £'000
Current tax
Current period UK corporation tax 176 -
Credit in respect of prior periods (18) (257)
Total current tax charge/(credit) 158 (257)
Deferred tax
Origination and reversal of temporary differences 344 118
Impact of change in tax rate 6,060 1,764
Adjustment in respect of prior periods (44) 210
Total deferred tax charge 6,360 2,092
Tax charge on loss on ordinary activities from continuing and discontinued 6,518 1,835
operations
Less: discontinued operations tax credit 375 -
Tax charge on loss on ordinary activities from continuing operations 6,893 1,835
Corporation tax for the year ended 31 December 2021 is calculated at 19%
(2020: 19%) of the estimated taxable profit for the period.
Following the announcement made in the Chancellor's Spring Budget regarding an
increase to the UK corporate tax rate from 19% to 25% from 1 April 2023, the
Finance Bill 2021 was substantively enacted on 24 May 2021. As IFRS requires
deferred tax to be measured at tax rates that have been substantively enacted
at the reporting date, the Group's deferred tax balances have been re-measured
accordingly and the impact has been reflected within the consolidated
financial statements. The impact of the change in tax rate has been adjusted
out of earnings for the purposes of calculating adjusted earnings per share
due to its distortive nature, refer to Note 7.
Reconciliation of effective tax charge
The tax on the Group's profit before tax from continuing operations differs
from the standard UK corporation tax rate of 19% (2020: 19%), because of the
following factors:
2021 2020
£'000
£'000
Profit/(loss) before tax from continuing operations 5,553 (1,356)
Tax at the UK corporation tax rate (see above)
1,055 (258)
Tax effect of expenses that are not deductible/income that are not taxable in 495 261
determining taxable profit
Other short-term timing differences - share options 161 135
Adjustment in respect of previous periods (62) (47)
Impact on deferred tax of change in tax rate 6,060 1,764
Recognition of a deferred tax asset (816) (20)
Tax charge on loss on ordinary activities 6,893 1,835
Effective tax rate 124.1% (135.3%)
Group relief is claimed and surrendered between Group companies for
consideration equal to the tax benefit.
Deferred tax arising in the reporting period and not recognised in net profit
or loss or other comprehensive income but directly charged to equity is £20k
(2020: £20k credit) and relates to deferred tax arising on share based
payment schemes.
5. discontinued operations and assets/liabilities classified as held for sale
On 1 March 2021, the Group acquired 100% of the share capital of Douglas &
Gordon Estate Agents Limited and its subsidiary companies (collectively,
'D&G Group'), thereby obtaining control.
On 10 November 2021, the Board approved the integration of the Douglas &
Gordon ('D&G') lettings business into the Foxtons network and the
simultaneous disposal of the D&G sales business to Lochlan Holdings
Limited ('Lochlan'), a company owned by the CEO of Douglas & Gordon
Limited.
On 10 February 2022, the shareholders of the Company approved the disposal of
the D&G sales business, which was a related party transaction under the
Listing Rules, via an ordinary resolution at a General Meeting.
On 11 February 2022, the D&G lettings customer contracts and relationships
were transferred from Douglas & Gordon Limited to Foxtons Limited by way
of a distribution in specie at net book value. Immediately after the transfer,
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 accordance with IFRS 5 'Non-current Assets Held for Sale and Discontinued
Operations', the D&G sales business, a disposal group, has been presented
as a discontinued operation. The assets and liabilities of the disposal group
were classified as assets held for sale on 10 November 2021.
Discontinued operations: Income statement
The following results of the operations classified as a discontinued operation
have been eliminated from the Group's continuing operations results, as are
shown as a single line item in the consolidated income statement.
2021 2020
(£'000) (£'000)
Before adjusted items Adjusted items After adjusted items
Revenue 6,842 - 6,842 -
Direct operating costs (2,855) - (2,855) -
Other operating costs (5,811) - (5,811) -
Adjusted operating loss (1,824) - (1,824) -
Held for sale impairment loss - (3,227) (3,227) -
Operating loss (1,824) (3,227) (5,051) -
Other losses - - - -
Finance income 1 - 1 -
Finance cost (151) - (151) -
Loss before tax (1,974) (3,227) (5,201) -
Tax credit 375 - 375 -
Loss for the year from discontinued operations attributable to shareholders of (1,599) (3,227) (4,826) -
the Company
Earnings/(loss) per share Before adjusted items After adjusted items
Basic and diluted loss per share from discontinued operations (0.5p) - (1.5p) -
Discontinued operations: Cash flows
The net cash flows incurred by discontinued operations are as follows:
2021 2020
£'000
£'000
Net cash outflow from operating activities (1,045) -
Net cash outflow from investing activities (172) -
Net cash outflow from financing activities (1,117) -
Net cash outflow (2,334) -
Assets held for sale
The major classes of assets and liabilities of the disposal group classified
as held for sale as at 31 December 2021 are as follows:
2021
£'000
Intangible assets 19
Property, plant and equipment 906
Investments 234
Right-of-use assets 4,605
Trade and other receivables 1,160
Cash and cash equivalents 3,715
Assets classified as held for sale 10,639
Held for sale impairment charge (3,227)
Assets classified as held for sale (net of impairment charge) 7,412
Trade and other payables (1,941)
Current tax liabilities (131)
Deferred tax liabilities (70)
Provisions (770)
Lease Liabilities (4,500)
Liabilities classified as held for sale (7,412)
Net assets classified as held for sale (net of impairment charge) -
The held for sale impairment charge of £3.2m recognised is derived as
follows:
2021
£'000
Net assets classified as held for sale (before impairment charge) 3,227
Consideration for sale -
Held for sale impairment charge (3,227)
6. Dividends
2021 2020
£'000
£'000
Interim dividend for the year ended 31 December 2021: 0.18p (2020: Nil) per 583 -
ordinary share
583 -
For 2021, the Board has proposed a final dividend of 0.27p per ordinary share
(£0.8m) to be paid on 24 June 2022.
7. earnings/(Loss) per share
Basic earnings/(loss) per share is calculated by dividing the earnings/(loss)
for the year attributable to ordinary equity holders of the Company by the
weighted average number of ordinary shares outstanding during the year.
Diluted earnings/(loss) per share is calculated by dividing the
earnings/(loss) attributable to ordinary equity holders of the Company by the
weighted average number of ordinary shares outstanding during the year plus
the weighted average number of ordinary shares that would be issued on
conversion of all the potentially dilutive ordinary shares into ordinary
shares. The Company's potentially dilutive ordinary shares are in respect of
share awards granted to employees.
Continuing operations Total Group
(Continuing and discontinued operations)
2021 2020 2021 2020
£'000
£'000
£'000
£'000
Loss for the purposes of basic and diluted loss earnings/(loss) per share (1,340) (3,191) (6,166) (3,191)
Adjusted for:
Adjusted items (including associated taxation)¹ 1,456 906 4,683 906
Deferred tax re-measurement (due to UK corporation tax rate change) 6,060 1,764 6,060 1,764
Adjusted earnings/(loss) for the purposes of adjusted earnings/(loss) per 6,176 (521) 4,577 (521)
share
¹ Adjusted items relating to continuing operations of £1,354k (2020:
£1,057k) per Note 3, and associated tax charge of £102k (2020: £151k
charge), resulting in an after tax charge of £1,456k (2020: £906k). Adjusted
items relating to discontinued operations of £3,227k (2020: £nil) per Note
5, less £nil associated tax charge (2020: £nil), resulting in an after tax
cost of £3,227k (2020: £nil).
Number of shares 2021 2020 2021 2020
Weighted average number of ordinary shares for the purposes of basic 324,045,184 313,816,658 324,045,184 313,816,658
earnings/(loss) per share
Effect of potentially dilutive ordinary shares 4,285,275 2,224,672 4,285,275 2,224,672
Weighted average number of ordinary shares for the purpose of diluted 328,330,459 316,041,330 328,330,459 316,041,330
earnings/(loss) per share
Loss per share (basic and diluted)(1) (0.4p) (1.0p) (1.9p) (1.0p)
Adjusted earnings/(loss) per share (basic and diluted)(2) 1.9p (0.2p) 1.4p (0.2p)
(1) The diluted loss per share is equal to the basic loss per share due to
the potentially dilutive share awards resulting in a reduction in the loss per
share and being anti-dilutive.
(2) The 2020 comparators have been restated to reflect the impact of the 2020
deferred tax remeasurement on the adjusted loss to enable year-on-year
comparability.
Refer to Note 5 for the calculation of the earnings/(loss) per share for
discontinued operations.
8. Goodwill and other intangibles
2021 Goodwill Brand Software Customer Total
£'000
£'000
£'000
contracts and relationships
£'000
£'000
Cost
At 1 January 2021 21,239 99,000 2,607 3,770 126,616
Additions - 2 - 2
Acquired through business combinations (refer to Note 13) 6,296 - 23 5,373 11,692
Transfer to assets held for sale - - (25) - (25)
At 31 December 2021 27,535 99,000 2,607 9,143 138,285
Accumulated amortisation and impairment losses
At 1 January 2021 9,819 - 1,067 768 11,654
Amortisation - - 528 1,124 1,652
Disposal - - - - -
Transfer to assets held for sale - - (6) - (6)
At 31 December 2021 9,819 - 1,589 1,892 13,300
Net carrying value
At 31 December 2021 17,716 99,000 1,018 7,251 124,985
At 1 January 2021 11,420 99,000 1,540 3,002 114,962
2020 Goodwill Brand Software Customer Total
£'000
£'000
£'000
contracts and relationships
£'000
£'000
Cost
At 1 January 2020 19,168 99,000 2,489 494 121,151
Additions - - 88 - 88
Transfer - - 30 - 30
Acquired through business combinations 2,071 - - 3,276 5,347
At 31 December 2020 21,239 99,000 2,607 3,770 126,616
Accumulated amortisation and impairment losses
At 1 January 2020 9,819 - 567 421 10,807
Amortisation - - 500 347 847
At 31 December 2020 9,819 - 1,067 768 11,654
Net carrying value
At 31 December 2020 11,420 99,000 1,540 3,002 114,962
At 1 January 2020 9,349 99,000 1,922 73 110,344
( )
Annual impairment review
a) Carrying value of goodwill and intangible assets with indefinite
lives
The carrying values of goodwill and intangible assets with indefinite lives
are summarised below. These assets have been subject to an annual impairment
review.
2021 2020
£'000
£'000
Lettings goodwill 17,719 11,420
Brand asset - sales and lettings 99,000 99,000
116,719 110,420
• Lettings goodwill is allocated to the lettings
group of CGUs and tested at this level. This allocation represents the lowest
level at which goodwill is monitored for internal management purposes and is
not larger than an operating segment.
• The brand asset has been tested for impairment
by aggregating the value in use relating to relevant sales and lettings groups
of CGUs. This grouping of CGUs represents the lowest level at which management
monitors the brand internally, and reflects the way in which the brand asset
is viewed as relating to the relevant sales and lettings CGUs as a whole,
rather than being allocated to each segment on an arbitrary basis.
b) Impairment review approach and outcome
The Group tests goodwill and the indefinite life brand asset annually for
impairment, or more frequently if there are indicators of impairment, in
accordance with IAS 36 'Impairment of Assets'.
The Group has determined the recoverable amount of each group of CGUs from
value in use calculations. The value in use calculations use cash flow
projections from formally approved budgets and forecasts covering a five-year
period, with a terminal growth rate after five years. The resultant cash flows
are discounted using a pre-tax discount rate appropriate for the relevant
group of CGUs.
Following the annual impairment review, there has been no impairment of the
carrying amount of goodwill or the brand asset.
c) Impairment review assumptions
The assumptions used in the annual impairment review are detailed below:
Cash flow assumptions
The key assumptions in determining the cash flows are expected changes in
sales and lettings volumes throughout the forecast period, together with
likely changes to associated direct costs incurred during the forecast period.
These assumptions are based upon a combination of past experience of
observable trends and expectations of future changes in the market, including
the ongoing impact of Covid-19.
Long-term growth rates
To evaluate the recoverable amounts of each CGU, a terminal value has been
assumed after the fifth year and includes a long-term growth rate in the cash
flows of 2% (2020: 2%) into perpetuity.
The long-term growth rate is derived from management's estimates, which take
into account the long-term nature of the market in which each CGU operates,
external industry forecasts of long-term growth in the housing market and
inflation rates and with reference to historical and macro-economic trading
performance in the UK.
Discount rates
In accordance with IAS 36, the pre-tax discount rate applied to the cash flows
of each CGU is based on the Group's weighted average cost of capital (WACC),
and is calculated using a capital asset pricing model and incorporates lease
debt held under IFRS 16.The WACC has been adjusted to reflect risks specific
to each CGU not already reflected in the future cash flows for that CGU.
The pre-tax discount rate used to discount lettings cash flows used in the
assessment of lettings goodwill is 11.5% (2020: 10.9%). The pre-tax discount
rate used to discount aggregated sales and lettings cash flows used in the
assessment of the brand asset is 11.5% (2020: 11.1%).
d) Sensitivity analysis
Sensitivity analysis has been performed to assess whether the carrying values
of goodwill and the brand asset are sensitive to reasonable possible changes
in key assumptions and whether any changes in key assumptions would materially
change the carrying values. Lettings goodwill showed significant headroom
against all sensitivity scenarios, while the brand asset is sensitive to
reasonable possible changes in key assumptions.
The key assumption in the brand impairment assessment is the forecast revenues
for the sales and lettings businesses. The carrying value of the brand asset
is not highly sensitive to changes in discount rates or long-term growth
rates.
The impairment model indicates brand asset headroom of £65.7m (2020: £57.5m)
or 36% (2020: 35%) of the carrying value under test. Cash flows are sourced
from the Group's Board approved plan while also complying with the
requirements of the relevant accounting standard. Sales revenue is to recover
by 2026 to the levels experienced in 2016, which equates to an average
increase of 5.1% over the forecast period. Lettings revenue is assumed to grow
at an average rate of 3.1% over the forecast period, excluding future lettings
book acquisitions that must be excluded from forecast cash flows under the
relevant accounting standard.
Assuming no changes in other elements of the plan, the brand asset headroom
would reduce to zero if the combined revenue compound annual growth rate
(CAGR) over the forecast period reduces from 3.8% to 2.5%. Under a reasonable
possible downside scenario, in which sales revenue fails to recover to 2016
levels by 2026 with an average 2.5% increase over the forecast period,
lettings revenue growth is limited to 2.1% and the Group takes appropriate
mitigating actions, such as reducing discretionary spend and direct costs, the
brand asset would be impaired by £4.9m.
9. Leases
Group as a lessee
The Group has lease contracts for its head office, branches and for motor
vehicles used in its operations. With the exception of short-term leases, each
lease is recognised on the balance sheet with a right-of-use asset and a lease
liability. The Group classifies its right-of-use assets in a consistent manner
to its property, plant and equipment.
Generally, the right-of-use assets can only be used by the Group, unless there
is a contractual right for the Group to sub-lease the asset to another party.
The Group is also prohibited from selling or pledging the leased assets as
security.
Right-of-use assets
The carrying amounts of the right-of-use assets recognised and the movements
during the year are outlined below:
Property Motor vehicles Total
£'000
£'000
£'000
At 1 January 2020 47,274 4,130 51,404
Additions 1,217 2,162 3,379
Acquired through business combinations 581 - 581
Disposals (247) (149) (396)
Depreciation (6,941) (2,422) (9,363)
Impairment charge (1,161) - (1,161)
At 31 December 2020 40,723 3,721 44,444
Additions 4,642 4,931 9,573
Acquired through business combinations 4,633 732 5,365
Lease modifications 551 - 551
Disposals (426) (166) (592)
Depreciation (7,383) (3,234) (10,617)
Impairment charge (287) - (287)
Assets transferred to held for sale (4,044) (561) (4,605)
At 31 December 2021 38,409 5,423 43,832
Lease liabilities
The carrying amounts of lease liabilities recognised and the movements during
the year are outlined below:
Property Motor vehicles Total
£'000
£'000
£'000
At 1 January 2020 51,714 4,150 55,864
Additions 1,217 2,162 3,379
Acquired through business combinations 581 - 581
Disposals (331) (136) (467)
Interest charge 2,111 105 2,216
Payments (8,145) (1,870) (10,015)
At 31 December 2020 47,147 4,411 51,558
Additions 4,642 4,931 9,573
Acquired through business combinations 4,765 732 5,497
Lease modifications (310) - (310)
Disposals (514) (168) (682)
Interest charge 2,015 160 2,175
Payments (11,173) (4,055) (15,228)
Liabilities transferred to held for sale (3,964) (536) (4,500)
At 31 December 2021 42,608 5,475 48,083
Current 6,550 2,275 8,825
Non-current 36,058 3,200 39,258
The difference in lease modifications movements recognised within right-of-use
assets and lease liabilities, totalling £0.9m, is recognised as an adjusted
item as disclosed in Note 3.
Of the movements in the year, cash payments in respect to principal lease
instalments totalling £15.2m were made (2020: £10.0m) and the remaining net
movement of £11.8m (2020: £5.7m) was non-cash in nature.
At the balance sheet date, the Group had outstanding commitments for future
minimum lease payments which fall due as follows:
2021 2020
£'000
£'000
Maturity analysis - contractual undiscounted cash flows from continuing
operations
Within one year 11,491 12,735
In the second to fifth years inclusively 31,306 30,771
After five years 13,023 15,240
55,820 58,746
The Group has elected not to recognise a lease liability for short-term leases
(expected lease term is 12 months or less), in line with the IFRS 16
short-term lease exemption. Payments made under such leases are expensed on a
straight-line basis. At 31 December 2021, the Group had a commitment of less
than £0.1m in relation to short-term leases.
Amounts recognised in the profit or loss
The following are the amounts recognised in profit or loss during the year, in
respect of the leases held by the Group as a lessee:
2021 2020
£'000 £'000
Continuing operations Discontinued operations Total Group Continuing operations Discontinued operations Total Group
Depreciation of right-of-use assets 9,913 704 10,617 9,363 - 9,363
Impairment charge of right-of-use assets 287 - 287 1,161 - 1,161
Interest expense on lease liabilities 2,025 150 2,175 2,216 - 2,216
Expenses relating to short-term leases 1,328 179 1,507 915 - 915
Total amount recognised in profit or loss 13,553 1,033 14,586 13,655 - 13,655
The Group as an intermediate lessor
Finance lease receivables
The Group is an intermediate lessor for various lease arrangements considered
to be finance sub-leases. The amounts recognised in the profit or loss during
the year are outlined below:
2021 2020
£'000
£'000
Finance income under finance leases recognised in the period 24 43
At the balance sheet date, third parties had outstanding commitments due to
the Group for future undiscounted minimum lease payments, which fall due as
follows:
2021 2020
£'000
£'000
Within one year 190 283
In the second to fifth years inclusive 580 276
After five years 150 -
920 559
10. Business Combinations
D&G
On 1 March 2021, the Group acquired 100% of the share capital of Douglas &
Gordon Estate Agents Limited and its subsidiary companies (collectively,
'D&G Group'), thereby obtaining control. The acquired subsidiary companies
were Douglas & Gordon Limited, Douglas & Gordon (2) Limited and
Royston Estate Agents Limited.
D&G Group is a high quality London estate agent operating two core
businesses being a lettings business letting residential properties,
representing approximately 60% of total revenues from 2,900 tenancies, and a
sales business selling residential properties on behalf of clients. The
acquisition was in line with the Group's strategy of acquiring businesses with
high quality lettings portfolios. The consideration paid by Foxtons for the
D&G Group was £15.5m with a cash balance left in the business of £3.9m
which was in excess of its working capital requirements and known liabilities.
As set out in Note 5, on 11 February 2022, the acquired lettings customer
contracts and relationships were transferred from Douglas & Gordon Limited
to Foxtons Limited by way of a distribution in specie at net book value.
Immediately after the transfer, the D&G sales business was disposed of
through the sale of the entire share capital of Douglas & Gordon Limited,
Douglas & Gordon (2) Limited and Royston Estate Agents Limited, for
nominal consideration of £2.
From the date of acquisition to 31 December 2021, the D&G Group as a whole
(continuing and discontinued operations) contributed £16.8m of revenue,
£1.9m of adjusted operating profit and £1.5m of loss before tax to the total
Group. If the combination had taken place at the beginning of the year, the
total Group's revenue for the period would have been £2.8m higher and profit
before tax £0.1m higher, excluding future synergies and amortisation of
acquired intangible assets
Assets acquired and liabilities assumed
A purchase price allocation exercise has been completed which identified
£5.4m of acquired intangible assets primarily relating to lettings customer
contracts and relationships, which are identifiable and separable, and will be
amortised over 15 years. £6.3m of goodwill has arisen on acquisition and is
primarily attributable to synergies, new customers, the acquired workforce and
business expertise.
The fair values of the identifiable assets and liabilities of the acquired
entities as at the date of acquisition were:
£'000
Assets
Acquired intangible assets recognised on acquisition 5,373
Property, plant and equipment 947
Intangible assets 23
Right-of-use assets 5,365
Investments 194
Cash and cash equivalents 3,872
Trade and other receivables 1,534
Contract assets 1,955
Deferred tax asset 50
19,313
Liabilities
Trade and other payables (2,808)
Contract liabilities (56)
Lease liabilities (5,497)
Current tax liability -
Deferred tax liability (1,025)
Provisions (770)
(10,156)
Total identifiable net assets at fair value 9,157
Goodwill arising on acquisition 6,296
Fair value of consideration transferred 15,453
The acquired goodwill has been allocated for impairment testing purposes to
the Group's lettings CGU which are expected to benefit from the synergies of
the combination. None of the goodwill is expected to be deductible for tax
purposes.
The fair value of the trade receivables amounts to £0.9m. The gross amount of
trade receivables is £1.1m and it is expected that the full contractual
amounts can be collected except for £0.2m, which is provided for.
The Group measured the acquired lease liabilities using the present value of
the remaining lease payments at the date of acquisition. The right-of-use
assets were measured at an amount equal to the lease liabilities, less any
acquisition related adjustments.
The deferred tax liability mainly comprises the tax effect of the accelerated
amortisation for tax purposes of the acquired intangible assets recognised on
acquisition.
Purchase consideration
£'000
Amount settled in cash 13,903
Deferred cash consideration 1,050
Contingent cash consideration 500
Fair value of consideration transferred 15,453
Gross purchase consideration was £15.5m, with £13.9m paid in March 2021 and
£1.1m paid in July 2021. Consideration paid in the year, net of cash
acquired, was £11.1m and is included in cash flows from investing activities.
Additionally, £0.5m of contingent cash consideration was paid on 1 March 2022
as part of the purchase agreement with the previous owners of the D&G
Group, this contingent cash consideration is included within trade and other
payables, and was due if the Group did not make any claims on the breach of
any agreed warranties over a twelve month period after the acquisition date.
Prior period acquisitions
As disclosed in the 2020 Annual Report, the Group completed the acquisition of
Aston Rowe Holdings Limited and its subsidiary company Aston Rowe Limited
(collectively, Aston Rowe). Further consideration of £0.4m was paid during
2021 representing the settlement of deferred and contingent consideration,
recognised within trade and other payables in the prior period.
Analysis of cash flows on acquisition
£'000
Cash consideration (13,903)
Deferred and contingent consideration paid in relation to current and prior (1,420)
year acquisitions
Cash acquired in subsidiaries 3,872
Acquisitions of subsidiaries, net of cash acquired (included in cash flows (11,451)
from investing activities)
Transaction costs of the acquisition (included in cash flows from operating (464)
activities)
Net cash flow on acquisitions (11,915)
Transaction costs amounting to £0.5m are not included as part of
consideration transferred and have been recognised as an adjusted item as
disclosed in Note 3.
11. Share Capital
2021 2020
£'000
£'000
Authorised, allotted, issued and fully paid:
Ordinary shares of £0.01 each
At 1 January 3,301 2,751
Issuance of share capital - 550
At 31 December 3,301 3,301
At 1 January 2021, the Company had 330,097,758 ordinary shares (1 January
2020: 275,104,391). As at 31 December 2021, the Company has 330,097,758
ordinary shares (2020: 330,097,758).
12. Merger reserve and other reserves
2021 2020
£'000
£'000
Merger reserve 20,568 20,568
Capital redemption reserve 71 71
Other capital reserve 2,582 2,582
23,221 23,221
During the period, there were no movements in either the merger reserve,
capital redemption or other capital reserve.
13. Client monies
At 31 December 2021, client monies held within the Group in approved bank
accounts amounted to £100.2m (31 December 2020: £85.2m). Neither this
amount, nor the matching liabilities to the clients concerned, are included in
the consolidated balance sheet. Foxtons Limited's and Douglas & Gordon
Limited'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.
14. RELATED PARTY TRANSACTIONS
Balances and transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and, in accordance with
IAS 24, are not disclosed in this note.
Remuneration of key management personnel
The remuneration of the key management personnel of the Group is set out below
in aggregate for each of the categories specified in IAS 24: 'Related Party
Disclosures'. The definition of key management personnel extends to the
Directors of the Company.
2021 2020
£'000
£'000
Short-term employee benefits 2,535 2,325
Post-employment benefits 77 76
Share-based payments 1,168 739
3,780 3,140
Other transactions
As set out in Note 5, on 11 February 2022, the D&G sales business was
disposed of through the sale of the entire share capital of Douglas &
Gordon Limited and Douglas & Gordon (2) Limited, to Lochlan, 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.
15. Alternative performance measures
In reporting financial information the Group presents APMs which are not
defined or specified under the requirements of IFRS. The Group believes that
the presentation of APMs provides stakeholders with additional helpful
information on the performance of the business, but does not consider them to
be a substitute for or superior to IFRS measures.
Our APMs are aligned to our strategy and together are used to measure the
performance of the business and form the basis of the performance measures for
remuneration. Adjusted results exclude certain items because if included,
these items could distort the understanding of our performance for the period
and the comparability between periods.
The definition, purpose and how the measures are reconciled to statutory
measures are set out below.
The Group reports the following APMs:
a) Adjusted operating profit/(loss)
Adjusted operating profit/(loss) represents the profit/(loss) before tax for
the period before finance income, finance cost, other gains/(losses) and
adjusted items (defined within Note 1). This is the measure reported to the
Directors for the purpose of resource allocation and assessment of segment
performance.
The closest equivalent IFRS measure to adjusted operating profit/(loss) is
profit/(loss) before tax. Refer to Note 2 for a reconciliation between
profit/(loss) before tax and adjusted operating profit/(loss).
b) Adjusted operating profit/(loss) margin
Adjusted operating profit/(loss) margin is defined as adjusted operating
profit/(loss) 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 the inputs used to derive adjusted operating
profit/(loss) margin.
c) Contribution and contribution margin
Contribution is defined as revenue less direct salary costs of front office
staff and bad debt charges. Contribution margin is defined as contribution
divided by revenue. Contribution and contribution margin are key metrics for
management since both are measures of the profitability and efficiency before
the allocation of shared costs. A reconciliation between continuing operations
revenue and contribution is presented below.
31 December 2021 Lettings Sales Mortgage broking Consolidated
£'000 £'000 £'000 £'000
Revenue 74,342 42,673 9,460 126,475
Less: Directly attributable salary costs (22,620) (19,797) (5,402) (47,819)
Less: Bad debt charges (37) (77) - (114)
Contribution 51,685 22,799 4,058 78,542
Contribution margin 69.5% 53.4% 42.9% 62.1%
31 December 2020 Lettings Sales Mortgage broking Consolidated
£'000 £'000 £'000 £'000
Revenue 57,291 28,180 8,079 93,550
Less: Directly attributable salary costs(1) (17,032) (14,086) (4,303) (35,421)
Less: Bad debt charges (18) (15) 5 (28)
Contribution 40,241 14,079 3,781 58,101
Contribution margin 70.2% 50.0% 46.8% 62.1%
(1)Includes £2.5m of Government support relating to CJRS passed through to
furloughed employees recognised against direct operating costs.
d) Adjusted earnings/(loss) per share
Adjusted earnings/(loss) per share is defined as earnings/(loss) per share
excluding adjusted items and any significant re-measurments of deferred tax
balances as a result of UK corporate tax rate changes.
The measure is derived by dividing profit/(loss) after tax, adjusted for
adjusted items and the impact of re-measuring deferred tax balances as a
result of UK corporate tax rate changes, by the weighted average number of
ordinary shares in issue during the financial period. The effect of
potentially dilutive ordinary shares is incorporated into the diluted measure.
This APM is a measure of management's view of the Group's underlying
earnings/(loss) per share.
The closest equivalent IFRS measure is earnings/(loss) per share. Refer to
Note 7 for a reconciliation between earnings/(loss) per share and adjusted
earnings/(loss) per share.
e) Net free cash flow
Net free cash flow is defined as net cash from operating activities less
repayment of IFRS 16 lease liabilities and net cash generated/used in
investing activities, excluding the acquisition of subsidiaries (net of any
cash acquired) and purchase of investments. This measure is used to monitor
cash generation. A reconciliation between net cash from operating activities
and net free cash flow is presented below.
2021 2020
£'000
£'000
Net cash from operating activities 23,476 14,672
Less: Repayment of IFRS 16 lease liabilities (15,228) (10,015)
Investing activities
Interest received 15 68
Proceeds on disposal of property, plant and equipment 154 220
Proceeds on disposal of investments 160 57
Purchases of property, plant and equipment (1,976) (630)
Purchases of intangibles (2) (88)
Net cash used in investing activities (1,649) (373)
Net free cash inflow 6,599 4,284
f) Net cash/debt
Net cash/(debt) is defined as cash and cash equivalents less external
borrowings. The APM has been introduced in the period to define how the Group
measures net cash/(debt) which 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.
2021 2019
£'000
£'000
Cash and cash equivalents 19,374 36,984
External borrowings - -
Net cash 19,374 36,984
16. Events after the reporting period
On 10 February 2022, the shareholders of the Company approved the disposal of
the D&G sales business, which was a related party transaction under the
Listing Rules, via an ordinary resolution at a General Meeting.
On 11 February 2022, the D&G lettings customer contracts and relationships
were transferred from Douglas & Gordon Limited to Foxtons Limited by way
of a distribution in specie at net book value. Immediately after the transfer,
the D&G sales business was disposed of through the sale of the entire
share capital of Douglas & Gordon Limited and Douglas & Gordon (2)
Limited, to Lochlan for nominal consideration of £2.
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