Purplebricks (PURP ), an online estate agent, swung to a pretax loss of £34.8m in the year ended 30 April 2022 (FY22) from a profit of £3.6m the previous year.this morning. Following a "year of transformation" the company outlined its performance recovery plan.
Financial performance in FY22
In addition to the £34.8m pretax loss, instructions also decreased 31% to 40,141, from 58,043 in FY21, due to supply issues in the housing market, although average revenue per instruction increased 4%, driven by higher average fees.
Revenue was down 23% to £70m, from £90.9m in FY21, following lower instruction volumes. Similarly, gross profit margin was 60.1%, down from 63.5% in FY21, reflecting lower volumes and an increase in fixed cost after the company transitioned its staff to a fully-employed model.
Purplebricks reported an adjusted EBITDA loss of £8.8m from a £12m profit in FY21, driven by lower activity, reduced gross margin, and increased marketing costs. As a result, cash and cash equivalents dropped to £43.2m from £74.0m in 2021.
Recovery plan
The company detailed its recovery plan to drive positive cashflow and return to growth and profitability. The plan focuses on four general initiatives: managing costs, growing and diversifying revenues, growing instructions, and raising standards.
Purplebricks said it would remove £13m from its cost base in FY21, equivalent to a 16% reduction in its operating cost base. In addition, the company said a new performance management programme and improvements in training have resulted in an 11% increase in conversation so far compared to FY22.
Purplebricks said it had implemented new sales and marketing initiatives to focus on its core customer segments rather than trying to be "everything for everyone". This has been further supported by "highly targeted and effective marketing".
The company also implemented pricing changes on 11 July, raising its fees by an average of 20% to cope with inflation. It also removed its money back guarantee after it failed to deliver its expected increase in instructions.
Finally, Purplebricks said it is exploring additional revenue options, and is expected to launch a mortgage offering by the end of the financial year.
Helena Martson, CEO, summarised actions taken by the company to reverse FY22's disappointing results:
"We have already taken decisive action. We have completed a substantial cost-reduction programme, re-trained all our field agents to raise standards and improve conversion, increased our prices and removed the Money Back Guarantee, adopted a more targeted sales and marketing plan, and dramatically overhauled our processes and procedures. We are also assessing additional revenue streams including our new mortgage proposition which we expect to launch by the end of this financial year."
View from Vox
The housing market is experiencing a slowdown due supply chain disruptions and the ongoing cost of living crisis. These factors have exposed weaknesses in Purplebricks' business model that the company is now actively mending. Purplebricks' recovery plan has produced some early signs of a turnaround.
Volumes and revenue in Q1 of FY23 showed improved trading compared to H2 FY22 with 11,000 net instructions and revenue of £16m. Given that changes continued to be implemented in Q1, the improvement does not yet reflect the full effect of initiatives undertaken, the company said.
Purplebricks is forecasting its recovery plan to yield £67.5-£72.5m of revenues in FY23, driven by instruction growth in H2 and further improvement in ARPI. The company also expects positive cash generation in early FY24, and to retain significant headroom in cash resources.
Purpleback continues to benefit from 93% brand awareness and high customer satisfaction. Therefore, while financial performance in FY22 was disappointing due to challenging economic conditions and certain policies that failed to deliver their intended effect, the company is still in a position to recapture lost market share.
"With the control and visibility we have gained through the implementation of our new operating model, and the swift action we have taken to improve performance and service levels, I believe we will be in a much stronger position to convert brand awareness into instructions, grow our revenue streams and drive customer advocacy," CEO Helena Martson said.
Additionally, Purplebricks transitioned its agents from a self-employed to a fully employed model in FY22. This did result in increased fixed costs and an initial disruption to the business, but the company strongly believes it is the correct strategy that will translate to higher instructions in the medium-term.
"One of the major benefits from moving to a fully employed model is the greater control we have in managing the service our customers receive, which leads to improved conversion in the living room as a higher proportion of customers asking us to value their property go on to instruct us to list and sell their property. "
"We have re-trained all of our field agents and implemented a more rigorous performance management system and the results are already clear to see. Conversion in the living room has increased by 11% compared with FY22. We will remain focused on sustaining these improvements as we continue to train and incentivise our field," CEO Helena Martson explained.
Investors seem to have confidence in the strategy as PURP shares have stayed positive on today's news.
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