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OnTheMarket Plc

OnTheMarket Interims in line with expectations

OnTheMarket plc (LON: OTMP), the agent-backed company which operates the OnTheMarket.com property portal, has announced its unaudited interim results for the six months ended 31st July 2019.

Financial highlights and KPIs

· Group revenue of £8.0m, up 14% (H1 18/19: £7.0m).

· Administrative expenses of £14.8m, up 23% (H1 18/19: £12.0m), primarily as a result of the Group’s investment in its sales and IT teams.

· Adjusted operating loss1 of £6.7m (H1 18/19: £5.0m).

· Operating loss of £7.2m (H1 18/19: £5.7m).

· Loss after tax attributable to shareholders of £7.0m (H1 18/19: £5.7m).

· Loss per share of 11.16p (H1 18/19: 9.57p).

· Cash of £8.8m as at 31 July 2019 (£15.7m at 31 January 2019).

· ARPA2 £108 (FY 18/19: £130), reflecting the larger number of agents listing under free, short-term introductory trial contracts in the period.

· Average branch numbers listed at OnTheMarket.com of 12,434 (H1 18/19: 7,788) with period end listings of 12,543 (H1 18/19: 9,777).

· Web and mobile visits3 increased by 75% to 120.7m (H1 18/19: 69.0m).

Operational review

· Conversions:

o Following earlier preliminary trials, conversion activity commenced in earnest during this period and, at 31 July 2019, 1,308 branches had been signed under new paying contracts. This had increased to 2,346 branches as at 30 September 2019.

o Average leads per advertiser were more than double that achieved in H1 18/19 and averaged 93 per advertiser per month for the period.

· Product development:

o The first new efficiency tool for agents was the Market Appraisal Guide, OnTheMarket’s version of Rightmove’s ‘Best Price Guide’.

o New agent advertising products were launched and the first sales of Spotlight properties and advertising banners were made.

· Further progress in the litigation between Agents’ Mutual and Gascoigne Halman:

o Following the judgment in the Group’s favour issued by the Competition Appeal Tribunal at the Court of Appeal in January 2019, the Group received payment in July 2019 of a further £1.1m in respect of cost recovery. This more than offset professional fees incurred in the period in relation to litigation and led to net income of £0.2m.

Post period end developments and outlook

· The Group is trading in line with its recent guidance:

o The Group had a cash balance at 30 September 2019 of £8.6m.

o The Group’s revenues cover fixed operational costs before marketing expenditure and are growing.

o The Directors have prepared and reviewed projections under different scenarios and, based upon these analyses, have a reasonable expectation that the Group has adequate financial resources to continue its operations for the foreseeable future.

· Conversion of free-of-charge trial agents to paying contracts and recruitment of new agents:

o As at 30 September 2019, 2,346 branches had been signed under new paying contracts since conversion commenced, at an average ARPA of £288 per month.

o 42% are under long-term contracts of 3 or 5 years with associated share issuance to align interests. ARPA on these contracts averages £331 per month.

o Following the introduction of shorter-term, lower-cost contracts, the rate of sign-ups has accelerated. ARPA on these contracts averages £203 per month.

· Strong agent listings and property stock:

o Agent offices listing at 30 September 2019 were 12,622, reflecting the recruitment of new agents offset by the removal of agent branches following the expiry of free trial periods.

o UK residential property listings on 30 September 2019 were 641,672, approximately 85% of Zoopla’s and 64% of Rightmove’s4. In the period from 3 July 2018 to 30 September 2019, OnTheMarket’s UK residential property listings grew by around 90,000 and Zoopla’s fell by around 66,0004.

· Increasing portal traffic, brand awareness and consumer engagement:

o In September 2019, the portal attracted a record 27.2m visits.

o Prompted awareness of the OnTheMarket brand among active property-seekers is up from 27% in June 2018 to 50% at the end of September 2019.

o At 30 September 2019, almost 1.2m people were using OnTheMarket’s property alert service. Average monthly instant alerts sent exceed 100m.

· Delivering greater value and growing leads to agent shareholders and customers:

o OnTheMarket’s monthly average leads per UK residential property advertiser rose to 112 in September 2019. Rightmove’s fell to 168 in H1 2019, while Zoopla’s last reported equivalent figure was 90 (H1 2018)5.

o Based upon an ARPA of £331 per month, in September 2019 the Group provided its UK residential advertisers an average of 34 leads per £100. In its H1 2019, Rightmove provided its UK residential advertisers on average 16 leads per £100.

Ian Springett, Chief Executive Officer of OnTheMarket plc, commented:

“Our results for the six months to 31 July 2019 were in line with our expectations.

“Our recent guidance indicated that agents had not committed to full-tariff, long-term paying contracts at the pace expected, however they have responded positively to the changes to our offering.

“We continue to convert agents to full-tariff, long-term contracts with share issuance. 42% of branches signed to new paying contracts since conversion began have been under these contracts. Following the share issuance arising from these contracts, over 3,000 agent firms operating over 6,000 UK agency branches will be OnTheMarket shareholders, increasing the strong core membership around which we are building OnTheMarket. Their backing for their portal in a variety of practical ways is key to creating an edge over our rivals in the portals market.

“We have recently supplemented our offering to agents with the introduction of lower-priced, short-term offers, with the aim of maximising the number of paying agents and migrating all to full-tariff contracts progressively. Take-up of these short-term offers has led to an encouraging acceleration in the rate at which agents are converting onto paying contracts.

“The continued strong growth in the operational performance of the OnTheMarket.com portal provides encouragement for the future. We have delivered another set of record-breaking traffic and leads results for our estate and letting agent shareholders and customers.

“I thank all my colleagues for all their hard work in driving OnTheMarket forward in pursuit of its objectives.”

1) Adjusted operating loss or profit is defined as operating loss or profit before finance costs, taxation, share based payments and exceptional or non-recurring items. This is an alternative performance measure and should not be considered an alternative to IFRS measures, such as revenue or operating loss or profit. Please see the Financial Review and Key Performance Indicators section below for a reconciliation of operating loss / profit to adjusted operating loss / profit.

2) Average revenue per property advertiser, being revenues due from property advertisers for a period divided by the number of property advertisers for that period. ARPA presented herein is the average of the monthly ARPAs for the period unless otherwise stated. A property advertiser is a listed agency branch or a new home development advertising on OnTheMarket.com.

3) Visits comprise individual sessions on OnTheMarket’s web based portal or mobile applications by users for the period indicated as measured by Google Analytics.

4) Zoopla listings of UK residential properties were 756,428 as at 30 September 2019 and 822,250 as at 3 July 2018. Rightmove, in its August 2019 House Price Index, stated that it “at any time displayed a stock of over one million properties to buy or rent”.

5) H1 2019 is the most recently published information available for Rightmove and H1 2018 the most recently published information available for Zoopla.

6) Unless otherwise stated, all figures refer to the six months ended 31 July 2019 and comparative figures are for the six months ended 31 July 2018 (“H1 18/19”).

Background on OnTheMarket:

OnTheMarket plc, the agent-backed company which operates the OnTheMarket.com property portal, is the third biggest UK residential property portal provider in terms of traffic. It aims to deliver a market-leading, agent-backed alternative to Rightmove and Zoopla, offering a first-class service to agents at sustainably fair prices and becoming the go-to portal for serious property-seekers.

OnTheMarket plc was admitted to AIM in February 2018, raising £30 million in new capital in order to support a new growth strategy for the business.

At its IPO in February 2018, OnTheMarket was 70% owned by over two thousand agent firms. With backing from its agent owners, OnTheMarket has developed unique sources of competitive advantage such as the thousands of “New & exclusive” property listings it receives every month from its agents to display 24 hours or more before they are on Rightmove or Zoopla.

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. There are a number of factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. The Group undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations.

Chief Executive Officer’s Report

Summary

The six month period to 31 July 2019 was one where we saw continued enhancements to the products and services we offer to listing agents, as well as further increases in consumer engagement and in leads delivered to agents. It was also the period in which the conversion of agents from free trials to paying contracts, which is critical to our future prospects, commenced.

Our progress for the half year was in line with our expectations. Further details on this are set out below in the Financial Review and Key Performance Indicators.

As a challenger business and brand, OnTheMarket is providing an alternative to Rightmove and Zoopla. It aims to offer the property-seeking public an excellent agent-backed portal whilst providing its agent customers the highest quality listing and support services, along with a commitment to sustainably fair pricing.

OnTheMarket is already indisputably established as one of the UK’s leading property portals and as a go-to destination for serious property-seekers in the market.

Since the end of the first half period, the difficult market conditions facing estate and lettings agents have impacted on our performance, as we previously announced to the market. A detailed assessment of our progress during the period to 31 July 2019, current trading since the period end and outlook is included below.

Operational Review of the period to 31 July 2019

Conversion of agents to paying contracts

Following earlier preliminary trials, H1 19/20 saw the start in earnest of our conversion activity, where the first of the short-term free introductory trial offers with listing agents reached the end of their term. By the period end, 1,308 branches had been contracted onto new paying contracts, predominantly representing branches converting from free contracts. This had increased to 2,346 branches as at 30 September 2019.

During the period the Company issued 1.8m Ordinary Shares to agents signing long-term contracts. The weighted fair value per share of Ordinary Shares issued to agents was £1.09. The Group has authority remaining to issue up to a further 32.9 million Ordinary Shares to recruit new property advertisers and the issuance of these shares is expected to result in both direct and indirect revenue growth.

It remains OnTheMarket’s policy to offer shares only to agents committing to full-tariff, long-term contracts and the Group is very pleased that 42% of the new paying agent branches added have been under these contracts.

Marketing and increasing value to agents

OnTheMarket continued to deploy significant funds to multi-channel marketing. The Group has taken a disciplined approach to the building of its advertising investment to ensure optimal value. In addition to highly efficient paid search and other digital marketing, OnTheMarket has run effective national TV and radio advertising as well as poster campaigns and has continued to develop its partnerships with Country Life and Facebook Marketplace.

The “New & exclusive” proposition is a key theme in our advertising: many of our agents choose to launch new instructions at OnTheMarket.com in advance of advertising them on Rightmove or Zoopla. The Directors believe this gives OnTheMarket a competitive advantage as this has been shown to hold a significant appeal to active property-seeking consumers, who are the key target group as they in turn provide listing agents with the highest quality leads.

The benefits of this investment in marketing can be seen in our visits, which increased to 120.7m in the period, up from 69.0m in the corresponding period last year.

Ultimately the value our property advertisers derive from the portal is in large part down to the quality and quantity of the leads they receive from it. It is encouraging to report that average leads per advertiser were more than double that achieved in H1 18/19, averaging 93 per advertiser per month for the period.

Creating new products and services for our property advertisers

The Group has stated its aim first to match and then to better the core set of agent products and services of its competitors, ranging from consumer-facing advertising products to a full set of “back office” intelligence-based services to enable them to track their performance locally and nationally across a range of valuable measures.

The introduction of the range of products and services is intended to help OnTheMarket agents reduce their reliance on Rightmove and other portals and strong progress was made in H1 19/20.

The first new efficiency tool for agents was the Market Appraisal Guide (OnTheMarket’s version of Rightmove’s ‘Best Price Guide’), released in March 2019. By using the co-branded reports with vendors and landlords, agents can reinforce OnTheMarket’s brand and encourage them to use the portal.

The Market Appraisal Guide was quickly followed by the successful implementation of the Group’s first paid-for additional products for agents: Spotlight properties, banner advertisements on the website and local property alert banners, all designed to boost the visibility of agents’ brands and listings. These products are bought separately from the contractual listing fee and all undercut Rightmove’s equivalent standard tariffs in a manner consistent with the Group’s commitment to fair and sustainable pricing.

Litigation

Following the judgment in our favour and against Gascoigne Halman issued by the Competition Appeal Tribunal at the Court of Appeal in January 2019, we received payment in July 2019 of a further £1.1m of costs recovered from Gascoigne Halman. This more than offset professional fees incurred in the period in relation to litigation and led to net income of £0.2m.

The residual non-competition issues relating to our claim remain to be resolved and are now focused on the recovery of financial damages by the Group due to Gascoigne Halman’s breaches of contract.

Post period-end developments

Conversion of agents to paying contracts

The ongoing growth in the number of branches under paying contracts is key to the Group’s transition into profitability.

As at 30 September 2019, 2,346 branches had been contracted onto new paying contracts, predominantly representing branches converting from free contracts.

We are continuing to convert agents to full-tariff, long-term contracts with share issuance. 985 branches have been contracted under these agreements, representing 42% of all branches signed to new paying contracts. ARPA on these contracts averages £331 per month.

Following the share issuance arising from these contracts, over 3,000 agent firms operating over 6,000 UK agency branches will be OnTheMarket shareholders, increasing the strong core membership around which we are building OnTheMarket.

We have recently supplemented our offering to agents with the introduction of lower-priced, short-term offers, with the aim of maximising the number of paying agents and migrating all to full-tariff contracts progressively. Take-up of these short-term offers has led to an encouraging acceleration in the rate at which agents are converting onto paying contracts. ARPA on these contracts averages £203 per month.

Strong agent listings and property stock

Agent offices listing at 30 September 2019 were 12,622, reflecting the recruitment of new agents offset by the removal of agents following the expiry of their free trial periods.

In September 2019, OnTheMarket began listing housebuilders for the first time, increasing further the range of properties available to property-seeking consumers to see on the portal. At 30 September 2019, OnTheMarket had 355 developments listed.

OnTheMarket’s UK residential property listings were 641,672 on 30 September 2019, approximately 85% of Zoopla’s and 64% of Rightmove’s, up, respectively, from 67% and 55% in July 2018. In the period from 3 July 2018 to 30 September 2019, OnTheMarket’s UK residential property listings grew by around 90,000 and Zoopla’s fell by around 66,000.

Broadening our advertiser base

The new homes market has been our initial focus in broadening our property advertiser base and I am delighted that the first housebuilder to join us was Barratt Developments PLC, the leader in its field, in September 2019.

A dedicated sales team has been established which has already recruited some smaller housebuilders.

We can also offer non-property advertisers the opportunity to promote themselves and their products and services to our very large and growing audience of active and engaged property-seekers and are delighted that Experian has become our first such customer.

Marketing and increasing value to agents

In September 2019, a record 27.2m visits were made to the portal. Leads to agent customers also reached record monthly levels, with an average of 112 leads per advertiser in September 2019. Based on its last published half-year report as ZPG plc (H1 2018), Zoopla delivered an average of 90 leads per advertiser per month for that period, down from 136 in FY 2015 (the year that OnTheMarket.com was launched). In H1 2019, Rightmove delivered an average of 168 leads per advertiser per month, down from 210 in FY 2015.

In H1 2019, Rightmove provided on average 16 leads per month per £100 of advertiser spend, down from 29 leads in H1 2015. Based upon an average monthly fee per advertiser of £331, in September 2019, OnTheMarket provided an average of 34 leads per £100 of advertiser spend. The Board is particularly pleased with this as it highlights the significant value the Group is providing to its customers.

Following disciplined investment in marketing, including the TV and radio campaigns, in September 2019 our prompted brand awareness rose significantly to 39% for all adults and to 50% for active property-seekers, from 19% and 27% respectively in June 2018 (source: YouGov survey). The Group will continue to invest to develop further its brand awareness.

The Group has invested in continuously improving the quality of the user experience on the portal, and consumer engagement has continued to grow. At 30 September 2019, almost 1.2m people were using OnTheMarket’s property alert service and average monthly instant alerts sent exceed 100m. This compares with 781 million instant alert emails which Rightmove announced it had sent across the whole of 2018, an average of 65 million per month.

Creating new products and services for our property advertisers

In September 2019, the Group introduced a beta version of its new Market Intel product which is OnTheMarket’s version of Rightmove’s ‘Intel’ product. Provided within the listing fee, the new product supports agents in calculating competitor rankings and by making it easier for agents to see how they and their properties are performing. In addition, the product enables them to check the number of phone and email leads they receive and they can also track local sales activity in the market.

OnTheMarket’s Intel not only matches Rightmove’s offering but also offers “Sales Monitor”, a tool developed to help agents determine whether a withdrawn property was sold while still subject to a contract with them under which fees might be due. It will automatically check withdrawn properties against Land Registry sales to highlight a potential match and agents can create an alert to receive updates when new potential matches have been found.

Following the release in H1 19/20 of the Group’s first paid-for additional advertising products for agents, further revenue-generating products will be released later this year.

Current trading and outlook

As we announced on 26 September 2019, agents are facing well-documented headwinds which have given rise to a much more challenging backdrop against which the Group has sought to convert agents onto full-tariff paying contracts.

The Group has, therefore, introduced shorter term, lower cost contracts, with the aim of converting all agents to full-tariff contracts progressively. The availability of this alternative has raised the current rate at which agent offices are signing paying contracts.

The Group’s strategy to achieve profitability is based upon increasing the number of paying agents, primarily through converting to paying contracts those agents who joined on an introductory free trial. We will look to support this by offering the range of products and services agents require, further increasing the value for money we provide them and aligning many of them with the long-term interests of the Group as shareholders. We are delivering high numbers of good quality leads to our agents and excellent value in terms of cost per lead.

A number of our original agent members remain on their initial paying contracts which expire in January 2020. We are actively engaged in discussions with these agents, many of whom have signed voluntary 5 year lock-in agreements over their shares with effect from 9 February 2018, to migrate them to new paying contracts.

The Group’s revenues are now covering fixed operational costs before marketing expenditure and are growing. The Group is trading in line with its recent guidance and it had a cash balance at 30 September 2019 of £8.6m. The Directors have prepared and reviewed projections under different scenarios and, based upon these analyses, have a reasonable expectation that the Group has adequate financial resources to continue its operations for the foreseeable future.

The challenging backdrop of relatively weak and highly uncertain market conditions for agents has undoubtedly slowed our progress. However, the ever-improving performance of the portal and the current level of take-up of both our long-term full-tariff contracts and our revised short-term offers provide grounds for optimism. I thank all my colleagues for all their hard work in driving OnTheMarket forward in pursuit of its objectives.

Ian Springett

Chief Executive Officer