Foxtons : Preliminary Results 2022

FOXTONS GROUP PLC

FINAL RESULTS FOR THE FULL YEAR ENDED 31 DECEMBER 2022

7 MARCH 2023

Significant unfulfilled potential, medium-term growth ambition to deliver £25m to £30m operating profit

Strong trading performance driven by significant growth in non-cyclical, recurring Lettings revenue

• Revenue up 11% to £140.3m with growth across all businesses: +17% in Lettings, +1% in Sales and +8% in Financial Services. 65% of revenue generated from non-cyclical, recurring activities.
• D&G Lettings, acquired in March 2021, delivered £5.3m of operating profit in 2022 and a 35% return on capital. £10.6m invested in Lettings acquisitions in 2022.
• Adjusted operating profit up 56% to £13.9m and profit before tax up 115% to £11.9m reflecting high levels of operating leverage driving strong revenue to profit conversion.
• Net free cash flow of £7.7m (2021: £6.6m) and year end net cash of £12.0m (2021: £19.4m).
• Final dividend of 0.7p per share declared, total 2022 dividend of 0.9p per share, an increase of 100%. £4.9m returned through share buybacks in 2022.

Business foundations strong, but four core operational failings have negatively impacted historical performance and prevented significant unfulfilled potential being realised:

• Poor data accessibility and utilisation impeded business decision making and the ability to unlock revenue growth opportunities.
• Outdated estate agency processes and diluted culture restricted organic growth.
• Insufficient headcount capacity and experience constrained productivity.
• No clear customer proposition and brand invisible in core markets limited ability to successfully compete.

Refocused strategic priorities, underpinned by a new purpose, support delivery of medium-term growth ambition to deliver £25m to £30m operating profit

• New purpose underpins our strategy: to get the right deal done for London's property owners.
• Refocused strategic priorities, with an emphasis on non-cyclical and recurring revenue streams, support the delivery of £25m to £30m operating profit in the medium term:
• • Lettings: Deliver 3%-5% average annual organic growth and attractive returns on capital from portfolio acquisitions
  • Sales: Achieve 4.5%+ (2022: 3.4%) share in our markets through building capacity and capabilities
  • Financial Services: 7%-10% annual average revenue growth by maximising cross-sell opportunities

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Current trading and outlook

• Trading in January and February in line with our expectations.
• Lettings market dynamic of low volumes and high rental prices has continued into 2023. Little change to the dynamic expected over the year but year-on-year rental price growth rates likely to normalise.
• Sales market more challenging as new buyer activity reduced following the September mini-budget, reducing the value of the under-offer sales pipeline entering this year. Due to the time to complete a sales transaction, these effects will be felt through the majority of 2023.
• Financial Services refinance activity is expected to remain resilient, whilst demand for new purchase mortgages will track performance of the wider sales market.
• Mortgage rates have started to reduce in recent weeks and buyer activity is picking up, which may result in a more favourable sales market in the latter part of the year.
• Operational improvements made in the last 6 months are starting to improve front-end operations including driving property instruction market share growth in both Lettings and Sales.
• High levels of non-cyclical and recurring revenues, alongside operational improvements to drive growth, will protect Group profitability and limit the impact of a weaker sales market.
• £7.4m acquisition of Atkinson McLeod announced yesterday, expected to be earnings enhancing in 2023.

Commenting on today's announcement, Guy Gittins, Group Chief Executive said:

"My first six months have flown by and it's great to be at the helm of the most iconic estate agency in London, the place I started my career 20 years ago. 2022 was a year of good financial progress, with revenue growth across Lettings, Sales and Financial Services, and profit before tax up significantly up year-on-year.

"My operational review is complete, whilst Foxtons has strong foundations, core operational failings have throttled historical performance and prevented significant unfilled potential from being realised.

"Operational improvements are being made at pace to rebuild our competitive advantages, including embedding a more confident articulation of our brand, investing in revenue generating headcount and improving our data platform to fully harness the power of our industry leading database.

"With the support of our talented workforce, I am certain we have the collective determination to put Foxtons on top where it belongs, and with a refocused set of strategic priorities, have a medium-term growth ambition to deliver £25m to £30m of operating profit.

"Whilst the macroeconomic backdrop remains uncertain, our resilient Lettings and Financial Services businesses, coupled with the operational improvements we are delivering at pace, should mitigate most of the impact of a potentially lower volume sales market."

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The Company will present a 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-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/preliminary-results-2022/vip_connect

1 Both 2021 and 2022 results are presented on a continuing operations basis and exclude 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. Refer to Note 2 for a reconciliation of the measure to statutory measures.

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 9 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. Refer to Note 7 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.

About Foxtons

Foxtons is London's most iconic estate agency. Founded in 1981, the Group operates from a network of interconnected branches, offering a range of residential property related services across Lettings, Sales and Financial Services. The Group seeks to deliver significant shareholder value through its four strategic priorities:

• Lettings organic growth
• Lettings acquisitive growth
• Sales market share growth
• Financial Services revenue growth

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1. Both 2021 and 2022 results are presented on a continuing operations basis and exclude the results of the D&G Sales business (disposed of on 11 February 2022).
2. These measures are APMs used by the Group and are defined, and purpose explained within Note 16.
3. Net cash from operating activities and net free cash flow includes continuing and discontinued operations.

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CHAIRMAN'S STATEMENT

2022 was an eventful year for Foxtons. Significant Senior Management changes took place, of which the most significant was the appointment of Guy Gittins as CEO. His appointment was announced in late May and after a period of garden leave required by his previous employer, he joined the Company on 5 September 2022.

Peter Rollings, a Non-Executive Director, who had previously spent 20 years at Foxtons, latterly as a Managing Director, took over as interim CEO pending Guy's arrival. I am most grateful to Peter for taking on this responsibility, which he fulfilled with enthusiasm and commitment.

Guy, who began his career at Foxtons and was most recently CEO of Chestertons, has brought to Foxtons considerable experience and success as an estate agent, as well as knowledge of the London residential market.

During his first six months, Guy has reviewed the business and developed a set of priorities to put the business firmly on the front foot and drive revenue and profit growth based upon rebuilding Foxtons' estate agency DNA. Already he's making significant strides in strengthening Foxtons' competitive advantages, enhancing our ability to innovate and lead the industry with our data capabilities, as well as refreshing our purpose and values.

We are prioritising growth in the non-cyclical revenue streams within Lettings and Financial Services to drive resilience and recurring revenues. Growth will be achieved through organic and inorganic growth in Lettings, and by building up our Financial Services business to handle more of the referrals generated from the Sales business.

The Group has set out its medium-term ambitions which will return Foxtons to a leading agency position in London and deliver significantly improved returns to our shareholders. The management incentive schemes are closely aligned to the Group's medium-term ambitions.

Financials

Revenue from continuing operations increased by 11% to £140.3 million, driven largely by Lettings which contributed £86.9 million, an increase of 17%. Adjusted operating profit increased by 56% to £13.9 million with Lettings contributing £18.0 million, enhanced by a full year of contribution from the D&G Lettings portfolio and the additional acquisitions made in 2022. Profit before tax increased by 115% to £11.9 million.

Head office and other administration costs were reduced by streamlining Senior Management, resulting in annualised savings of around £3 million, of which around two thirds were reflected in the 2022 results. In order to grow market share across the business, these savings have been reinvested, by increasing the number of agents and advisers, to drive organic growth in Lettings and Financial Services and return Sales to profitability in the longer term.

Net cash at the year end was £12.0 million, after investing £8.5 million in lettings portfolios and buying back £4.9 million of shares.

In the final quarter, the Group wrote off its £3.4m investment in Boomin which went into liquidation due to the economic slowdown and a decline in funding availability in the technology sector. Investment will now be firmly focused on the core business.

Board

Reflecting a period of change and some tenures coming to an end, there were a number of Board changes during the year, including a full change of the Executive Directors with Nic Budden, Richard Harris and Patrick Franco stepping down and the appointment of Guy Gittins as CEO and Chris Hough as CFO.

Additionally, two of our Non-Executive directors, Alan Giles and Sheena Mackay, have chosen not to stand for re-election at the 2023 AGM given the new Chairman, CEO and wider management team changes are now complete and in place. I would like to thank Alan and Sheena for their great support and contribution as Non- Executive Directors during my chairmanship and wish them well with their new endeavours. Rosie Shapland

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