Foxtons has just released its final results for the full year ended 31 December 2022, revealing a strong trading performance driven by significant growth in non-cyclical, recurring lettings revenue. 

The estate agency group says it has also identified significant unfulfilled potential, medium-term growth ambition to deliver £25m to £30m operating profit. 

The company has revealed a 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·      Outdated estate agency processes and diluted culture restricted organic growth.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

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.

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.”