Foxtons : Half-Year Results 2022

Foxtons Group plc

INTERIM RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2022

28 JULY 2022

Foxtons Group plc (the "Company" or "Foxtons"), London's leading estate agent, today announces its financial results for the half year ended 30 June 2022.

Commenting on the results, Nigel Rich, Chairman of Foxtons, said: "In the first six months of the year we have made significant progress against our plans to reset the business and get back on the front foot. To this end I am very much looking forward to welcoming Guy Gittins, the former CEO of Chestertons, as CEO in September this year.

In the period, we successfully completed the integration of D&G lettings, as well as making a further two acquisitions in our lettings business to enhance earnings and market share. We enter the second half with a tightening grip on costs, a focus on sales intensity, and an improved ability to generate revenue from prudent investment in negotiators and financial services advisers.

There remains much to do, but the heart of Foxtons is strong, and we are well placed to accelerate profit growth and realise the potential of the business."

Financial summary

Half year ended 30 June	2022	2021	Change
Continuing operations1:
Revenue	£65.1m	£63.4m	+3%
Adjusted operating profit2	£6.2m	£5.4m	+13%
Profit before tax	£4.3m	£3.6m	+21%
Adjusted earnings per share (basic and diluted)3	1.1p	1.1p	-
Earnings/(loss) per share (basic and diluted)	0.9p	(1.1p)	2.0p
Total Group4:
Net free cash inflow5	£2.8m	£3.0m	(5%)
Interim dividend per share	0.20p	0.18p	0.02p

Financial highlights - half year ended 30 June

• From continuing operations1:
• • Revenue growth of 3%, reflects 20% growth in lettings revenue, a 17% decline in sales revenue and an 8% decline in financial services revenue.
  • Sales and financial services revenues benefited in 2021 from sales transactions being pulled forward ahead of the 30 June 2021 stamp duty deadline.
  • Adjusted operating profit of £6.2m, up 13%, with strong profit conversion from incremental lettings revenues and £0.9m of H1 cost savings (annualised savings of £3.0m), mitigating inflationary cost pressures.
  • Profit before tax of £4.3m up 21%.
• Net free cash inflow of £2.8m (2021: £3.0m).
• Net cash of £11.6m at 30 June 2022 (31 December 2021: £19.4m), after £8.5m of net cash outflow relating to lettings acquisitions, £0.9m of share buybacks and dividends paid of £0.9m.
• Interim dividend of 0.20p per share (2021: 0.18p).

Continued strategic progress in the half

• Organic revenue growth
• • Streamlined executive and senior management, introducing more estate agency expertise, to drive a return to a robust culture of sales intensity and productivity.
  • Invested in sales negotiators and financial advisers to better maximise the existing opportunity and deliver profit growth.
  • New revenue channels delivered good organic growth with the Asia Pacific channel revenue doubling to £1.9m and Build to Rent revenue exceeding £1m.

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• Lettings portfolio acquisitions
• • Successful integration of D&G lettings with synergies delivered in line with expectations, £5.7m of revenue and £2.6m of operating profit in the period.
  • Lettings portfolio stands at c.27,500 tenancies, with 2,500 new tenancies added in the period through the acquisition of Gordon & Co and Stones Residential, both expected to be earnings enhancing towards the end of 2022.
  • Building a pipeline of lettings portfolio targets, with a view to delivering further acquisitions in the next 12 months.
• Profit growth
• • Increased adjusted operating profit margin by 90bps to 9.5%.
  • Cost action taken to streamline the Executive Board and de-layer senior management with £0.7m of reorganisation costs recognised in the first half as adjusted items.
  • Expect to realise £3.0m of annualised savings from cost action, with £0.9m delivered in H1 2022. Cost savings mitigate ongoing external cost pressures and enable reinvestment in revenue growth areas.

Outlook

Notwithstanding the global and domestic headwinds impacting the UK economy, we expect adjusted earnings growth in the second half compared to H2 2021, including some additional benefit from the recent lettings portfolio acquisitions. We anticipate adjusted earnings for the full year to be at least in line with market expectations.

1 Both 2021 and 2022 results are presented on a continuing operations basis and excludes the results of the D&G sales business (disposed of on 11 February 2022).

2 Adjusted operating profit is defined as profit before tax for the period before finance income, finance cost, other gains/(losses) and adjusted items.

1. Adjusted earnings per share is defined as earnings per share excluding the impact of adjusted items and any significant remeasurements of deferred tax balances as a result of UK corporate tax rate changes. Refer to Note 7 for a reconciliation between earnings/(loss) per share and adjusted earnings per share.
2. Total Group includes results from both continuing operations and discontinued operations. On a total Group basis, revenue was £65.6m and adjusted operating profit was £5.6m. Refer to Note 5 for details of the results from discontinued operations.
3. Net free cash flow is defined as net cash from operating activities less repayment of IFRS 16 lease liabilities and net cash generated/used in investing activities, excluding the acquisition of subsidiaries (net of any cash acquired), divestments and purchases of investments.

The Company will present a live webcast at 9:00am (BST) for analysts and investors. To access you will be required to pre‐register using the following link: https://secure.emincote.com/client/foxtons/interim-results-2022.A replay of

the presentation will be available shortly afterwards on the webcast link. 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/interim-results-2022/vip_connect

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For further information, please contact:

Foxtons Group plc

Chris Hough, Chief Financial Officer Muhammad Patel, Investor Relations

TB Cardew

Ed Orlebar / Tom Allison

Deborah Goodier

About

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Foxtons is London's leading estate agent with the most recognised brand. Founded in 1981, Foxtons operates from a network of interconnected branches, offering a range of residential related services across three revenue streams: lettings, sales and financial services.

Foxtons is confident it can deliver significant shareholder value by delivering against core strategic objectives:

• Driving organic revenue growth through market share growth, further developing our revenue channels and enhancing cross-sell capabilities;
• Identifying, acquiring, and integrating high quality lettings portfolios; and
• Achieving profit growth by increasing staff productivity and continuing to streamline infrastructure and management.

To find out more, please visit www.foxtonsgroup.co.uk

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CHAIRMAN'S STATEMENT

The last six months have seen a marked change in the political and economic outlook both globally and nationally. The continuing war in Ukraine and the sad consequences for its people has further exacerbated inflationary pressures. Interest rates and mortgage rates have risen, and although they still remain relatively low, further increases may impact the London sales market. Despite these headwinds, I am pleased to report that Foxtons has made good progress.

Significant changes have occurred in the senior management team with the departures, for a variety of reasons, of the CEO, COO, CFO and other senior managers. As announced on 30 May, Guy Gittins, the former CEO of Chestertons, will join the Company as CEO on 5 September. Guy began his estate agency career at Foxtons and has proven himself to be a highly effective leader and business builder within the industry. We look forward to Guy bringing his skills as an estate agent and as a successful CEO to Foxtons in September with a particular emphasis on driving revenue and gross margin, as well as reviewing the cost structure of the business.

Pending Guy's arrival, Peter Rollings, a non-Executive Director, agreed to take over as acting CEO following Nic Budden's departure. Peter was for a number of years a Managing Director of Foxtons and subsequently successfully bought and grew Marsh & Parsons before conducting a sale to LSL. I am very grateful to Peter for taking on the interim CEO role. He will revert to being a non-Executive Director again once Guy is in position.

Both Nic Budden and Patrick Franco retired from the Board during the period. We will be looking at the Board composition in the coming months to ensure it is best placed to meet the needs of the business and governance requirements.

Amidst the political and economic turmoil, it is pleasing to report that the Company has increased adjusted operating profits by 13% from £5.4m to £6.2m, and profit before tax has increased by 21% from £3.6m to £4.3m. The lettings business performed particularly strongly, with 20% revenue growth year-on-year, enhanced by the contribution from the acquired D&G portfolio and growth in rental prices. As expected, sales revenue was down in the half year due to the prior period benefiting from stamp duty relief which pulled forward significant transaction volumes into the first half of 2021. There is still much to do to improve our performance in sales of which the strategic recruitment and retention of negotiators is crucial.

We ended the half year with net cash of £11.6m compared with £19.4m at the previous year end. In May we acquired two lettings portfolios for £8.2m cash, with a further £1.5m of consideration deferred over the next 12 months. Over the period we also spent £0.9m on share buybacks and paid a final dividend of £0.9m. We expect to make further lettings portfolio acquisitions during the next 12 months and will review the continuation of share buybacks once the current commitment to buy up to £3m of shares is fulfilled.

The Board has declared an interim dividend of 0.20p per share (2021: 0.18p per share) which will be paid on 27 September 2022 to shareholders on the register at 26 August 2022.

Notwithstanding the global and domestic headwinds impacting the UK economy, we expect adjusted earnings growth in the second half compared to H2 2021, including some additional benefit from the recent lettings portfolio acquisitions. We anticipate adjusted earnings for the full year to be at least in line with market expectations. Above all we look forward to the arrival of Guy Gittins and the impact and enthusiasm he will bring to the business.

Nigel Rich CBE

Chairman

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INTERIM CHIEF EXECUTIVE'S REVIEW

The Group made good progress in the first half of 2022, and I'm delighted to be leading the business on an interim basis before Guy Gittins, the former CEO of Chestertons, joins us in September. Over the last two months, I have reviewed the fundamentals of the business, which I'm pleased to say are strong, but importantly note there is significant opportunity to be realised by investing in the right areas.

First half Group revenue from continuing operations grew 3% to £65.1m (2021: £63.4m) comprising: lettings

£39.4m (2021: £32.9m); sales £20.8m (2021: £25.2m) and financial services £4.8m (2021: £5.2m). Adjusted

operating profit from continuing operations grew 13% to £6.2m (2021: £5.4m) and profit before tax from

continuing operations grew 21% to £4.3m (2021: £3.6m).

Delivering against the strategy

The executive team has been focused on delivering against our core objectives to grow organic revenues; deliver our lettings portfolio acquisition strategy; and drive profits, primarily through increasing market share and cost management, whilst prioritising high return investments.

Organic revenue growth

We accelerated our organic growth strategy in the first half by increasing the number of negotiators in our sales business and expanding our financial services advisers, to maximise the revenue and profit opportunity. Despite the tough talent market, we have made progress in scaling up the business to drive higher volumes through our fixed cost base, enabling us to further benefit from our inherent operational leverage.

Lettings portfolio acquisitions

As part of our strategy to deliver attractive total returns on invested capital and improve the resilience of our revenues, we acquired two lettings portfolios, Gordon & Co and Stones Residential. The acquisitions add 2,500 additional tenancies to our lettings portfolio, which now stands at c.27,500 tenancies. We expect the acquisitions to be earnings enhancing towards the end of the year once acquisition synergies start to be realised. Following a successful integration, that delivered the planned cost synergies, the D&G lettings portfolio is trading well contributing £2.6m in operating profits in the first half.

Profit growth and cost management

While there remains limited flexibility on core costs, we have made significant progress on simplifying our management structures and expect to deliver £3m of cost savings on an annualised basis. These savings help mitigate external cost pressures, such as national insurance increases, business rates increases, wage inflation and utilities inflation, and enable us to invest in the business to sustainably grow market share and profits.

Operating Review - continuing operations

Lettings

The lettings business performed well in the first half as we capitalised on a strong market. Revenue grew £6.5m, or by 20%, reflecting organic growth of £4.0m, £2.0m incremental revenue from D&G and £0.5m of revenue from the May 2022 acquisitions. Organic growth was driven by a 23% increase in average rental prices compared to the prior year, longer tenancies, and growth in Build to Rent and short lets. In the second half, supply of lettings properties is expected to remain restricted but strong tenant demand will likely underpin rents over the remainder of 2022.

Sales

Sales traded in line with expectations, with revenue down £4.4m, or by 17%, as the first half of 2021 benefited from transaction volumes pulled forward to take advantage of stamp duty relief ahead of the 30 June 2021 deadline, creating a tougher comparative period. We expect a stronger third quarter in sales compared to the prior year with an under offer commission pipeline of £19m at 30 June 2022, significantly higher than both the prior year and 2019.

Under offer to exchange conversion continues to be slower than normal due to continuing industry-wide capacity issues in conveyancing and surveying; This means, while we saw good levels of buyer demand and

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