Purplebricks Group Plc (LON: PURP), a leading hybrid real estate agency, announced its results today for the year ended 30 April 2019.
|Gross profit margin (%)||58.5%||56.5%||+200bps|
|Cash at year end||62.8||152.8||(59)|
· Group revenue up by 55% to £136.5 million (FY 2018: £87.8 million)
· UK revenue up by 21% to £90.1 million
· UK ancillary revenue 44% of total3 (FY 2018: 43%)
· Canadian business, acquired in July 2018, contributed revenue of £23.7 million
· Group gross margin up by 200bps to 58.5%, UK like-for-like2 gross margin up by 70bps
· Operating loss of £52.3 million (FY 2018: £27.8 million)
· UK operating profit £5.3 million, an operating margin of 5.9% (FY 2018: 3.0%)
· UK Adjusted EBITDA2 up 65% to £10.2 million (FY 2018: £6.2 million)
· UK hybrid market share4 of 76% (April 2018: 73%)
· 3.5x more sales than the number two UK estate agent (FY 2018: 3.1x)5
· UK average revenue per instruction up 6%
· Completed on £10.4 billion of UK property (FY 2018: £9.7 billion), saving customers £77 million in commission6
· Canadian business continues to meet management expectations
· On 7 May 2019, Michael Bruce stepped down, and Vic Darvey was appointed CEO
· Previously announced closure of the Australian business in May 2019
· Today the Group announces its withdrawal from the US following a strategic review
Vic Darvey, Group Chief Executive Officer, commented: “It’s been another year of strong revenue growth and we continue to build a highly relevant disruptive brand and defensible position in the market. With a base of clear brand leadership in both the UK and Canada and a differentiated, technology-led proposition driving business model advantages, we now have a clear plan to unlock the next wave of growth and extend our market leadership.
We have taken the difficult decisions to exit our businesses in both Australia and the US as it is very important that we now focus our resources on the UK and Canada, where we have a strong established presence and where there are significant opportunities to grow market share and deliver profitable growth for shareholders. Both exits will be conducted in an orderly manner with the expectation they will be completed by the end of 2019.”
Over the five years since we launched Purplebricks in the UK, we have fundamentally changed the estate agency market. We believe that our differentiated, technology-led proposition will drive profitable growth and will enable us to take market share from traditional agents. Current economic and political uncertainty in the UK means market conditions remain challenging with volumes continuing to trend downwards, partially offset by higher revenues per instruction. Recent management and strategic changes will enable a greater focus on operational excellence and allow us to leverage our unrivalled data position to drive customer experience and accelerate performance. Given the strength of our balance sheet, we will continue to invest in our brand, technology and product development, while ensuring greater control over cash management and generation. We are excited by the prospect of driving forward our well-established UK and Canadian businesses in FY 2020 and beyond, and reiterate our medium term objective to gain 10% share of the UK market.
1 FY 2018 numbers have been restated under IFRS 15 throughout.
2 The underlying performance of the Group is monitored internally using a variety of statutory and alternative performance measures (“APMs”), which are not defined within IFRS. Such measures should be considered alongside the equivalent IFRS measures. For full definitions and reconciliations of APMs, please refer to note 4 to the financial statements.
3 Ancillary revenue percentage is a KPI used by the Board to measure the performance of the business in generating non-instruction income from customers. The management information in this KPI recognises consideration receivable at a point in time and therefore differs from the accounting in the Group’s financial statements
4 Source: Rightmove
5 Source: TwentyCi data
6 Fees paid to Purplebricks vs typical commission of 1.3% plus VAT
7 The content of the Purplebricks website should not be considered to form a part of or be incorporated into this announcement.
Having recently celebrated our fifth anniversary since launching in the UK, there are many things as true today as they were then – that the provision of good customer service, greater transparency, better technology and a low, fair, fixed fee underpinned by operational efficiency will enable us to build a sustainable, profitable business.
Going forward, there is considerable headroom to further disrupt the traditional real estate agency markets in both the UK and Canada. Building on our brand and operational strengths, we will make targeted investments that enable us to better exceed the needs and demands of sellers, buyers and renters across our business.
In FY 2019, Group revenue was up by 55% to £136.5 million (FY 2018: £87.8 million). Despite the soft property market and consumer uncertainty caused by Brexit, the UK performed well with revenue up 21% year-on-year. Canada contributed £23.7 million of revenue in its first nine months of ownership. Our Australian and US businesses contributed £22.7 million of revenue in aggregate (FY 2018: £13.4 million). As discussed below, both the Australian and US businesses will be closed in FY 2020. Despite this strong revenue performance, operating losses increased to £52.3 million (FY 2028: £27.8 million), driven by £52.9 million of operating losses incurred in Australia and the US.
Cash at the year-end was £62.8 million (30 April 2018: £152.8 million) giving significant firepower to execute our strategy and improve our customer offering over the medium term. Our decision to exit the Australian and US markets is expected to significantly reduce cash burn going forward.
For further discussion of financial performance and the position of the Group, please refer to the Chief Financial Officer’s report.
The Board is focused on driving the Group’s mission to deliver an excellent customer experience through world-class technology and service. Our focus going forward is to ensure that the Group’s ambitions are managed against risks, with sustainable growth at the heart of our business.
In May 2019, Michael Bruce announced he was stepping down as Chief Executive Officer and as a Director. As well as being a co-founder of the business, Michael’s vision, passion and energy were the driving forces behind our success and the Company becoming the UK’s leading hybrid estate agent. Michael leaves with our thanks and best wishes for the future. Subsequent to Michael stepping down, the Bruce family disposed of its remaining 14% stake in the Company to Axel Springer, giving that business a 26.6% holding in Purplebricks.
The Board appointed Vic Darvey as Chief Executive Officer in May 2019 to lead the business for the next phase of development. Vic had joined the business in January 2019 as Chief Operating Officer and brings more than 20 years’ experience of leading successful high growth, customer-focused disruptive technology and data driven businesses. Vic has a clear vision of the priorities we need to address to take the Company forward, and this is laid out in his statement below.
After the end of the financial year, the Board made the difficult but important decisions to close the Group’s operations in Australia and to withdraw from the US. The rationale for these decisions is discussed in the Chief Executive’s Statement, with an estimate of closing costs included in the Chief Financial Officer’s review. Our focus going forward is on our profitable UK business and well-established Canadian operations to drive their full potential.
As a fast-growing and relatively young business, we are aware that as we grow we need to maintain a governance infrastructure that is appropriate for our increasing size and profile. The Company has adopted the Quoted Companies Alliance Corporate Governance Code (“QCA Code”) and is accordingly committed to complying with the QCA Code or providing a clear explanation of any areas in which the Company’s governance structures and practices differ from the expectations set by the QCA Code.
Due to the evolution of our business, the Board has concluded that it would be premature to consider returning capital to investors at this time as we continue to focus our financial resources on exploiting the many opportunities we see to realise our potential. As our strategy and financial performance develop, we will look to move to a progressive dividend policy in future years.
2 July 2019
Chief Executive’s statement
Purplebricks has grown rapidly over the last five years to become the largest UK estate agent, with clear brand leadership, an innovative business model and disruptive economics. Whilst the last 12 months have seen challenging trading conditions what’s become really clear is that we have a strong and differentiated business model that is hard to replicate.
We have clear brand leadership in the UK, with awareness currently at 96%9 and a brand that is more familiar to UK consumers than any other estate agent brand. Our brand strength has been further validated this year with Purplebricks being named the 13th most relevant brand in the UK in the annual Superbrands® insight survey. This is an incredible achievement for such a nascent brand, being considered alongside other leading consumer brands including Google, Amazon, Netflix and PayPal.
Customer value proposition
Purplebricks has an effective model which is a clear “category killer” and we remain hugely focused on becoming “the only place customers go to buy, sell and let their homes”. We have an unrivalled value proposition in the marketplace that offers consumers the opportunity to sell their homes for a fair, fixed fee. We are always available, when most high street agents still stick to office hours. Our technology provides complete transparency to the entire buying and selling experience enabling viewings to be booked instantly online and offers to be made and accepted from the palm of your hand around the clock.
Purplebricks’ revolutionary process of buying and selling has enabled a market-leading position in the UK in terms of the total properties we represent on the market and the speed at which we sell them. We also enjoy significant market share in Quebec.
Moving forward, we are fully focused on creating a more dynamic customer experience based on real-time analytics, artificial intelligence and Smart CRM delivering a best-in-class experience. This will enable end-to-end service excellence for customers and greater automation and efficiency for our Local Property Experts (“LPEs”).
People and culture
We have a stand-out culture at Purplebricks and, as we have grown, we have distilled the best elements of our customer service ethos into our Purple Promises:
- We focus on people, not just property;
- We go the extra mile for every customer, every time;
- We treat everybody fairly and with respect; and
- If we say we will do something, we do it.
We continue to focus on attracting and retaining the best talent in the category and moving forward, we need to make sure that we have the right mix of capabilities in the business with an appropriate balance of real estate and digital talent.
Our sharp focus on talent is reflected in the feedback we receive from customers, and we are proud that we remain the most positively reviewed estate agent in the UK with nearly 67,000 independent reviews on Trustpilot with an excellent or great rating of 9.5 out of 10. To further reinforce our feedback capabilities, we have also launched a second review service with Feefo and I am pleased to say that we have achieved a consistently high score of 4.7/5 and also winning their coveted ‘Gold Trusted Service’ award in 2019 for maintaining a score of more than 4.5/5 over the previous 12 months.
We have a differentiated, technology-led proposition driving clear business model advantages and we believe there are significant opportunities for us to scale. As consumer expectations continue to evolve, fueled by the adoption of 5G, we anticipate that the hybrid model will continue to displace traditional agents. Our aim being to drive higher attachment rates of products in basket, higher engagement through the My Purplebricks app and opportunities to create longer lifetime value through Purplebricks Plus.
As we unlock the next wave of growth, we will be focusing on three areas of product development that will continue to extend our market leadership while using data and technology to reset the service standards of the industry:
• Re-accelerate core growth by delivering rapid innovation of the customer journey;
• Increase LPE productivity by delivering greater automation and efficiency; and
• Start building the foundations of a real-time, mobile-enabled estate agent of the future.
Rapid expansion into international markets over the last few years has been distracting and the product and technology teams have been stretched to the limit. However, recent decisions to exit both the Australian and US markets have given us the opportunity to refocus on our flagship markets of the UK and Canada. There is a huge focus on continuing to take share from incumbent traditional operators and extend our market leadership. However, there is also a recognition that we need to do things differently, none more so than in product and technology.
We will be moving to more agile ways of working, instilling strong product principles and an enduring product vision that lays strong foundations for a data-enabled and digitally-enhanced estate agent of the future.
Strength of balance sheet
Following our fifth anniversary since launch in April 2019, we are now beginning our second phase of growth, and it will be characterised by a more optimal allocation of capital and a laser focus on operational excellence. Withdrawing from the Australian and US markets will significantly reduce operational losses and we expect to remain in a position of positive cash generation across the UK and Canada combined this year. This will be supported by clear, consistent, operational metrics.
In the UK, we grew the number of instructions and revenue generated despite the market slowing and a number of traditional estate agents reporting a reduction in activity and a decrease in their revenues.
We were delighted that once again independent analysis from the leading, whole of market, industry data specialists TwentyCi resulted in a number of positive conclusions about our key customer performance metrics for the year ending April 2019:
· We sold more homes: Purplebricks sold Subject to Contract (“SSTC”) 3.5x more properties than the next largest UK estate agent (FY 2018: 3.1 times)
· Highest conversion: Purplebricks had the highest level of conversion to SSTC and the lowest withdrawn level of the top 20 estate agency brands in the UK
· Sold faster: Purplebricks sold (SSTC) properties faster than the top 10 largest estate agency brands in the UK – at an average of 52 days
· Secure best price: compared to the top 50 largest traditional estate agency brands whose average instruction price is between £250,000-£300,000, Purplebricks achieved sales that are £9,000 higher on average
· Number one at selling houses: 77% of listings sold (completed, exchanged or SSTC) within 12 months to April 2019; 56% of listings are sold within two months
· Largest market share: Purplebricks lists more properties than any other agent brand on homes up to £1 million, which represents 96.5% of the entire market
In FY 2019, our average revenue per instruction increased to £1,243 (FY 2018: £1,168), and we expect that to be higher in the next financial year as we continue to look at optimising attachment rates for ancillary products and other adjacency opportunities.
We remain optimistic about the potential of our UK business and we believe that there are significant opportunities to extend our market leadership.
On 6 July 2018, we completed the acquisition of DuProprio, a leading hybrid real estate business in Canada with a significant market share in Quebec and impressive revenue growth in the other provinces in which it operates. The acquisition by Purplebricks is expected to accelerate these opportunities by enhancing the customer experience through its market-leading model and technology, capitalising on an extensive buy-side revenue opportunity and introducing aspects of the Purplebricks business model to operate alongside the highly successful digital service offered by DuProprio.
We will be disciplined in building on the momentum of this established business with three initial areas of focus:
• Continue to automate the experience through technology and process improvements;
• Maintain 20% market share in Quebec; and
• Increase brand awareness and market penetration in the remainder of Canada having rebranded to Purplebricks from ComFree in early 2019.
The business continues to be led by the existing, highly experienced, management team in place at the time of the acquisition.
During the two and a half years that Purplebricks operated in Australia, market conditions became increasingly challenging. Despite changes to the business model and the continued hard work and dedication of the team there, we failed to gain the scale needed to succeed. Given the market outlook, and size of the ultimate opportunity, the Board took the decision in May 2019 to run down and close the business, which will be completed by 31 December 2019. A reduced team is in place to ensure a professional wind down of the business and to ensure we continue to deliver great outcomes for our remaining customers.
Having launched in the US in September 2017, we expanded rapidly into a total of seven states within a year. Each state required a significant investment in marketing to underpin the brand. Having not seen the revenue growth we had expected, in early May 2019 we put the US business under strategic review, to examine the feasibility of delivering growth in a more effective and cost-efficient manner. Having reviewed a number of alternative business models, the outcome of the strategic review was that while there remains a significant opportunity to disrupt the US market, it would take substantially more management time and resources than the Company is able to commit at this time. Therefore, a decision was taken to withdraw from the US and either sell or close the business.
Most importantly, our people
I would like to take this opportunity to thank all of our incredibly talented people across all our markets in what has been a challenging year – from the external macro environment to a number of significant internal changes. My thanks in particular to our colleagues in Australia and the US, who have remained highly professional and, without exception, always focused on delivering great outcomes for our customers throughout a very difficult period for the business.
Chief Executive Officer
2 July 2019