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OnTheMarket Plc

OnTheMarket revenues up 28% to £10.2 million

OnTheMarket plc (LON:OTMP), the majority agent-owned company which operates the OnTheMarket.com property portal, has announced its unaudited interim results for the six months ended 31 July 2020.

Highlights

Period ended 31 July20202019Change
Group revenue£10.2m£8.0m28%
Adjusted operating profit / (loss)1£0.8m£(6.7)m£7.5m
Operating profit / (loss)£0.7m£(7.2)m£7.9m
Profit / (loss) after tax£0.7m£(7.0)m£7.7m
Period-end net cash£9.8m£8.7m2£1.1m
ARPA3£124£10815%
    
Average advertisers4 listed13,59212,4349%
Total advertisers at 31 Jul13,75712,54310%
Agency branches at 31 Jul12,24512,543(2)%
New homes developments at 31 Jul1,512NilN/a
Traffic/visits5117m121m(3)%
Average monthly leads per advertiser1059412%

·   Revenue and ARPA up 28% and 15% respectively, despite COVID-19 related customer support discounts of £1.8m and the curtailment of contract conversion activity.

· Group achieves profitability as a result of measures implemented to reduce costs and conserve cash. In particular, marketing expenditure was down 67% to £2.2m (H1 19/20: £6.6m).

· Strong balance sheet with period-end net cash of £9.8m and, excluding deferred creditor payments of £2.0m, no borrowings (31 January 2020: £8.7m and deferred creditors of £0.7).

·   Agency branches listed at 31 July 2020 remain robust, despite COVID-19 giving rise to some cancellations and office closures.

· 1,512 new home developments listed following the launch of the new homes offering in September 2019.

·   Traffic and lead growth impacted by the COVID-19 lockdown restrictions, which effectively suspended UK housing market activity .

· As lockdown restrictions were effectively lifted, year-on-year visits in July 2020 increased 173% to 27.5m and average leads per advertiser increased 56% to 148.

Post period end strategic and operational highlights:

· At 30 September 2020, the Group had almost 3,800 estate and letting agents as shareholders, or under contract to become shareholders, operating 6,800 offices between them.

· Targeted, data-driven approach to resumption of marketing investment to support consumer engagement and lead generation for advertisers.

· Continued growth in new home development listings with the addition of Taylor Wimpey plc’s developments to the portal, joining other leading housebuilders including Barratt Developments PLC, Persimmon Plc and Bellway plc ; seven of the 10 largest housebuilders now list at OnTheMarket.

· Strong cost and cash management maintained. As at 30 September 2020, the Group had net cash of £10.3m and, excluding deferred creditor payments of £2.0m, no borrowings.

· Assuming the UK housing market remains open and active, the Group expects revenues and costs to increase from H1 20/21 levels in the second half year to 31 January 2021, as it invests to enhance service and increase value to customers. The Group expects to achieve a broadly breakeven adjusted operating profit position for the full financial year .

· Following the departure of Ian Springett in March 2020, Jason Tebb has been appointed as Chief Executive Officer, with effect from 14 December 2020.

Clive Beattie, Acting Chief Executive Officer of OnTheMarket plc, commented:

“We started the year strongly with trading in February and the first half of March in line with management expectations. However, the first half of the financial year quickly became dominated by the impact of the COVID-19 pandemic.

“Our focus during the period has been to safeguard employee well-being, provide value and support to our agent and housebuilder customers and to manage costs and conserve cash.

“We have been particularly pleased with the strong consumer engagement with the portal since the easing of national lockdown restrictions in May, with record leads indicating that those consumers most active in the property market visit OnTheMarket.com.

“We continue to believe that our differentiated proposition, with agents at the heart of our strategy as both customers and majority shareholders, provides a strong foundation for future growth. Whilst we remain cautious amidst the ongoing uncertainty associated with the COVID-19 pandemic, the actions we have taken, and the demonstrable value we provide our agent customers, gives me continued confidence in the future success of the Company.

” I thank all my colleagues for their hard work during what have been unprecedented and extremely challenging times. Their professionalism and dedication has enabled us to continue to deliver value for all of our stakeholders.”

Footnotes

1)  Adjusted operating loss or profit is defined as operating loss or profit before share based payments (including charges relating to shares issued for agent recruitment), share of profit or loss from associates, specific professional fees and  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)  Period-end net cash in the 2019 column is net cash at 31 January 2020. Net cash at 31 July 2019 was £8.8m.

3)  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.

4)  Advertisers are either estate and lettings agent branches or new home developments listed at OnTheMarket.com.

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

6)  Unless otherwise stated, all figures refer to the six months ended 31 July 2020 and comparative figures are for the six months ended 31 July 2019 (“H1 19/20”).

Acting Chief Executive Officer’s Report

The period began in line with management expectations, however it was dominated by the onset of the COVID-19 pandemic and associated public health restrictions, which had a profound impact on the UK residential property market .   As previously announced, the Group took a number of measures to safeguard employee well-being, provide value and support to agent and housebuilder customers and to manage costs and conserve cash. These measures have proved effective and positioned the Group well for the future.

In particular, the Group acted decisively before the formal lockdown restrictions came into place to support customers through this period of uncertainty by offering full-tariff listing agreement discounts.  Accordingly, revenue growth in the period was tempered by these discounts, which amounted to £1.8m, as well as by the suspension of activity to convert agents on short-term, introductory free of charge contracts to paying contracts. Despite these actions, revenues were up 28% versus the previous half year.

The measures that were implemented to reduce costs and conserve cash proved effective. The Group achieved an adjusted operating profit of £0.8m (H1 19/20; adjusted operating loss of £6.7m). This includes a reduction of £0.5m in staff costs, which arose from the utilisation of the Coronavirus Job Retention Scheme and from voluntary pay waivers by staff, and from a reduction in marketing expenditure, which was down 67% to £2.2m (H1 19/20: £6.6m) in the period. However, it excludes £0.3m of government grant income received under the Coronavirus Job Retention Scheme, which is treated as a non-recurring item. Adjusted EBITDA (being adjusted operating profit / (loss) before depreciation and amortisation) was a profit of £2.1m (H1 19/20: loss of £5.6m) and the Group achieved a profit after tax of £0.7m (H1 19/20: loss of £7.0m).

Following the easing of national lockdown restrictions in May 2020, and despite a substantial reduction in advertising expenditure, consumer engagement with OnTheMarket.com has been very strong and the record leads we have achieved indicate to us that those consumers most active in the property market visit our portal. We believe that our “New & exclusive” properties, which sees many agents choose to list properties on the site in advance of listing them on Rightmove or Zoopla, together with properties of agents listing exclusively with OnTheMarket help attract motivated property-seekers, who in turn deliver value to our advertiser customers through the provision of high-quality leads.

During the period, we were also pleased to welcome further agents as shareholders in the Company. Agents remain at the core of our strategy, as demonstrated by the discounts we quickly offered to customers to help mitigate the impact of COVID-19 on their businesses. However, more than just a short-term response, we believe our unique offering, combining agent ownership with a long-term commitment to sustainably fair pricing, sets us apart in the portals space. We look forward to working further with agents to provide them with a valued, competitive service and we are grateful to all those supporting us as customers and shareholders.

At 30 September 2020, the Group had almost 3,800 estate and letting agents as shareholders, or under contract to become shareholders, operating 6,800 offices between them

On 9 March 2020 the Group announced the departure of Ian Springett, then Chief Executive Officer. On 1 September 2020, the Group was pleased to announce the appointment of Jason Tebb as Chief Executive Officer. Jason will start on 14 December 2020, bringing extensive property and estate agency experience across digital and physical markets, having been Group COO of Ultimate Holdings for the last three years, a group of companies, specialising in property investment and finance, property management, property development and property technology. Prior to this, Jason successfully launched, scaled and exited Ivy Gate, an estate and letting agency, was a Regional Managing Director at Main Market listed LSL Property Services plc for three years and held senior management positions at agents Chestertons Limited and Foxtons Group plc.

Operational Review

COVID-19 gave rise to unique and unprecedented operational challenges during the period and it was far from “business as usual”.

The restrictions imposed by Government in response to the COVID-19 pandemic all but closed the UK housing market, placing substantial stress on the businesses of our customers. Whilst the Group sought to provide them support through discounts, nevertheless the impact led to some agency closures and customer cancellations, as customers were forced to reduce their costs in the face of the uncertainty that existed at that time. The various Government support schemes played an essential role in easing the financial burden on businesses and we, like many of our customers, utilised the Coronavirus Job Retention Scheme, without which there would very likely have been a significant number of redundancies.

As the full lockdown restrictions were eased in May and the UK housing market reopened, agents and new homes builders saw extremely high levels of activity. The combination of demand built up during lockdown and before, a reassessment of housing wants and needs by many of the British public and the stamp duty relief introduced by the Chancellor led to significant activity in the later part of the half-year period to 31 July 2020 and beyond. This activity undoubtedly eased the financial pressure our customers were under.

In a further response to COVID-19, the Group choose to suspend conversion activity in order to support agents given the financial stress and uncertainty that weighed on their businesses. However, the implications of the pandemic have given rise to an increased focus on portal costs and ownership within the estate agency industry, with many agents expressing their attraction to our differentiated proposition and majority agent ownership. In response, we introduced new full-tariff contracts, albeit with an initial free listing period to September 2020 to provide support whilst the market recovered, which offered agents shares alongside their listing agreements. As at 31 July 2020, 581 branches were contracted under these new agreements.

New homes advertiser numbers continued to grow strongly through the period, with 1,512 developments listed at 31 July 2020, up 69% from 894 at 31 January 2020, momentum which continued after the period-end with the addition of Taylor Wimpey’s new home developments to the portal. Our objective is to deliver housebuilders increasing value through access to highly-motivated property seekers and the delivery of incremental high quality leads.

Whilst traffic and leads were lower in the months of March, April and May due to the effective suspension of the UK residential housing market, they were otherwise very strong, indicating high levels of consumer engagement amongst the property-active public.

For the six month period overall, visits were down only 3% at 116.6m (H1 19/20: 120.7) and average leads per advertiser per month were up 12% to 105 (H1 19/20: 94). In July 2020, as property-market activity increased, visits were up 173% year-on-year at 27.5m and average leads per advertiser were up 56% year-on-year at 148.

Litigation

On 13 March 2020, the Group was pleased to announce that it had reached an out of court settlement between Agents’ Mutual Limited and Gascoigne Halman Limited and Connells Limited. The agreement ended all litigation proceedings between the parties.

Post period-end developments

Having quickly taken the necessary actions to safeguard employees and support customers as the pandemic took hold, the Group focussed on actions to allow it to emerge from the crisis in a strong position to grow the business for the benefit of all stakeholders.

Whilst the long-term implications of the COVID-19 pandemic are not yet known, it has become clear that some of the changes to our way of life and to business practices will undoubtedly continue for some time. In order to adapt to the new way of working, the Group undertook a review of its operating practices and procedures. This review unfortunately led to a limited number of redundancies, but will allow OnTheMarket to operate efficiently whilst maintaining high levels of service for advertisers and consumers.

The Group continued to offer discounts to customers during August and September, totalling a further £0.8m. As the UK residential housing market has reopened, we have begun to engage with those customers on free listing agreements to ask them to support our majority-agent owned portal by signing up to a paying contract. With very competitive rates offering excellent value for money and a choice of contracts, from full-tariff contracts with associated share issuance to shorter-term, discounted contracts, we believe it is essential that agents act over the coming months to introduce genuine competition into the portals market by supporting OnTheMarket. Activity in the housing market has rebounded strongly, but with future uncertainty over the macro-economic environment, the COVID-19 pandemic has brought into focus the need for a portal with the interests of its customers at its core and one committed to sustainably fair pricing. Whilst the Group believes it is now appropriate to remove firms who have listed under free introductory contracts, which were effectively extended through lockdown, the Group will continue to engage with them over the coming months, asking them to consider the value for money OnTheMarket offers, alongside the opportunity to become shareholders in the majority-agent owned portal, and to rejoin under paying contracts. OnTheMarket has achieved strong consumer engagement and it is equitable that only paying agents benefit from the leads and services it provides.

Growth in the number of branches under paying contracts remains key to the Group’s ongoing success and supports increased investment in service, marketing and product development, to the benefit of all our agent customers and shareholders.

In our new homes segment we have seen continued growth and were pleased to reach a listing agreement with Taylor Wimpey plc, one of the UK’s largest housebuilders. We now have 7 of the largest 10 UK housebuilders listing on OnTheMarket.com, including Barratt Developments PLC, Persimmon Plc and Bellway plc.

Agency branches listed at 30 September 2020 remain robust, despite COVID-19 giving rise to some cancellations and office closures. The Group has also started to remove agents who have come to the end of their introductory free listing and chose not to enter a paying contract.

As at 30 September 2020, the Group had:

· 13,472 total advertisers listed, comprising 11,799 agency branches and 1,673 new homes developments; and

· over 9,400 agency branches under paying contracts, including c3.5k branches on discounted rates.

Traffic and leads have remained strong in August and September, with visits averaging over 26m and leads over 1.9m. To support our customers we have begun to increase our investment in marketing, albeit we remain focussed on the need to manage our costs and conserve cash as far as possible given the uncertain economic outlook.

As well as targeted investment in traditional marketing activities, following a review of our marketing strategy we have also begun trialling new approaches to data analysis which are designed to improve the effectiveness of our consumer advertising and hence continue to increase the quantity and quality of our leads to customers. This will represent an area of ongoing investment which we hope will provide meaningful results in the months ahead.

Outlook  

The Group’s strategy is to provide a first-class property listings service for property advertisers and property seekers alike. As consumers have become increasingly engaged with our portal, we are delivering high numbers of good quality leads to our customers at very competitive rates.

Our objective now is to continue to grow the number of paying advertisers by working with agents and housebuilders and encouraging them to support the portal. Being majority agent owned and with our customers’ interests at the core of our strategy, we look forward to providing an ever-improving service and product range to support that mission.

As at 30 September 2020, the Group had net cash of £10.3m and, excluding deferred creditor payments of £2.0m, no borrowings.

Cash balances will naturally fluctuate as creditor and tax payments fall due, but the Company has continued to take a disciplined approach to managing its cost base and cash position, including through a significant reduction in marketing expenditure from late March 2020 to 30 September 2020. Cost management remains a focus for the Group going forward.

Assuming the UK housing market remains open and active, the Group expects revenues and costs to increase from H1 20/21 levels in the second half year to 31 January 2021, as it invests to enhance service and increase value to customers. The Group expects to achieve a broadly breakeven adjusted operating profit position for the full financial year.

The operational and financial progress that the Group has delivered both during the period and since the period end, in the face of very challenging market conditions, is a testament to the strength of our offering and the value we deliver for our customers. Whilst the Board remains cautious about the macro-economic environment, we remain confident that the actions we have taken to steer the business through some of the most difficult housing market conditions in recent memory have positioned the Group well for future growth.

I thank all my colleagues for their hard work during what have been unprecedented and extremely challenging times. Their professionalism and dedication has enabled us to continue to deliver value for all of our stakeholders.

Clive Beattie

Acting Chief Executive Officer

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.