Purplebricks Group Revenue growth and EBITDA profit despite difficult market conditions

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Purplebricks Group Plc (LON: PURP), a leading estate agency business, announced its Interim Results for the six months ended 31st October 2019.

First Half	H1 20 £m	H1 19^[1]Pro forma£m	Change %	H1 19¹ £m
Group – continuing operations^[2]
Revenue	64.8	63.6	1.9	57.6
Gross profit	39.4	39.5	(0.3)	36.2
Gross profit margin (%)	60.8%	62.1%	(130)bps	62.8%
Operating (loss)/profit	(1.2)	4.8	(125.0)	4.1
Adjusted operating profit^[3]	1.6	6.2	(74.2)	5.5
Adjusted EBITDA³	4.3	8.4	(48.8)	7.9
Cash (consolidated)	41.6	103.1	(59.7)	103.1

Financial highlights

· Group revenue £64.8 million (H1 19: £57.6 million), up 12.5% or 1.9% on a pro forma basis

· Revenue split UK 73%, Canada 27%

· Group gross margin 61%, down 130bps mostly due to buyside revenue growth in Canada

· UK ancillary revenue[4] 45% of total (H1 19: 44%)

· UK Adjusted EBITDA3 £5.5 million (H1 19: £8.4 million), an Adjusted EBITDA margin of 11.7%

· Cash at period end £41.6 million (30 April 2019: £62.8 million)

· Loss for the period including discontinued businesses £14.1 million (H1 19: £27.8 million)

Operational highlights

· Customers saved more than £150 million in commission in the First Half

· UK listing market share[5] broadly maintained at 4.1%; share of completions5 5.3%, up 280bps

· UK average revenue per instruction (“ARPI”) up 12% year-on-year

· UK pricing review completed, moving into testing phase

· UK brand awareness now at 97%

· Canada maintained solid EBITDA margin in Quebec

· Strong growth of Purplebricks brokerage outside of Quebec driven by buyside mandates

· Australia and the US closures going to plan and within the £10-14m range announced in July

Vic Darvey, Purplebricks Group Chief Executive Officer, commented:
“We are very pleased with the progress made in the Period in light of the market backdrop. We’ve seen resilient trading in the First Half, with our diverse revenue streams and strong ARPI growth improving the quality of earnings and balancing out declining market conditions. We end the First Half having now stabilised the business and the significant losses incurred last year have now been reversed with the Group enjoying profitable trading.
“Our focus on operational excellence and improvements in our technology-led proposition, along with proactive management of our pricing structure will enable us to continue to achieve profitable growth. We remain confident of meeting our medium-term objective to gain a 10% share of the UK market.”

Interim Results

This was a challenging First Half for the Group with the number of properties coming onto the UK market falling to the lowest level in a decade as consumers adopted a ‘risk off’ mentality. However, management is pleased to report that the Group had a resilient performance in the first six months of the year with its diverse revenue streams and strong ARPI growth balancing out declining market conditions, resulting in positive revenue growth as a Group.

Trading was in line with management expectations. While the Group maintained its 4% listings market share in the UK, it increased share of the number of houses sold by 280bps to 5.3% of the market as the investments made to get closer to the customer and sell more houses started to pay off. The Canadian business modestly outperformed expectations, with strong growth in Alberta, Manitoba and Ontario (“English Canada”).

A key management initiative over the First Half was to stabilise the business and maintain a strong cash position. The exit of the US and Australian markets is going to plan and the costs associated with the withdrawals are within the range guided at the full year results in July 2019. It is expected that both markets will be fully closed by the end of the financial year.

Looking forward, the business is making good progress on the strategy articulated in July, with the brand continuing to gain traction in both the UK and Canada and a transformation programme that will deliver on four key strategic initiatives designed to accelerate the growth of the core business and start the journey towards management’s goal of 10% UK market share.

Initiative 1 – Evolve our pricing

An in-depth pricing exercise was conducted in the period by management to answer three fundamental questions:

How much headroom do we have in our pricing?
Can we increase our addressable market by evolving our pricing structure?
Can we better incentivise our population of Local Property Experts (“LPEs”) to improve customer outcomes?

The pricing exercise saw the deployment of four different pricing methods into the market to gather data and as a result, a series of in-field tests will be conducted in early 2020 that will examine different pricing strategies, with some reducing the level of up-front fee and splitting the payment between publication and completion. The data gathered to date indicates an ability to extend the Group’s addressable market with more sophisticated pricing.

In the meantime, on 24 October management increased UK prices by £100 nationwide, honouring any earlier valuations for 30 days. The business’ pricing remains favourable to a typical industry commission level of 1.2% plus VAT.

Initiative 2 – Estate agent of the future

During the First Half, particularly in the UK, the Group worked closely with a number of customers to better understand how the existing customer experience can be improved, and also how future areas of growth can be unlocked.

Despite the market backdrop, management has increased investment into technology and building out product and engineering capability. The technology teams have been restructured to accelerate delivery speed, with dedicated squads focused on improving all elements of the customer experience. Specifically, with the ever-increasing adoption of mobile technology, resources have been increased on delivering a more personalised customer experience.

Initiative 3 – Enhancing performance in the field

In order to improve the quality of the customer offering in the field, significant investment was made in real-time analytics and market data to enable LPEs to have more meaningful conversations with customers in their living rooms to drive conversion. Investment has also been made into recruitment, induction and training academy programmes, which have significantly improved performance management in the field and across the business.

At Full Year results, management made a commitment to give back a day a week to LPEs by the end of 2020. The Group has now begun to improve key process automation, including anti-money laundering checks. Management also has a clear vision that LPEs should earn more than their high street counterparts, supported by more relevant data and enabling technology to offer customers a better experience.

Initiative 4 – Transforming our customer processes

In the First Half, significant investments were made in both people and technology to improve the level of service provided to customers and to focus the business on selling more houses. The most significant investment was made to enhance proactive sales support for customers, resulting in a reduction in time from sale agreed to completion by seven days. This also helped increase the number of houses sold in a declining market and increased the Group’s market share of completed sales to 5.3% in the First Half.

The Group has also invested in new technology in the UK to ensure that customers have a choice of channel through which to communicate with the Company, including the deployment of an omni-channel customer engagement platform.

Internally, during the First Half the World-Class Manager training programme was introduced, along with a contact centre school, which have helped to increase productivity by around 25%.

These improvements have been validated with a net promotor score of 80 (October 2018: 79). Purplebricks continues to be the most positively reviewed UK estate agent with more than 70,000 reviews on Trustpilot and were recently awarded the Gold Trusted Service Award by another review provider, Feefo.