Foxtons, the London-based estate agency, has reported strong financial performance in 2022, driven by significant growth in non-cyclical, recurring Lettings revenue.
The company saw an 11% increase in revenue to £140.3m, with growth across all its businesses. The lettings segment grew by 17%, sales by 1%, and financial services by 8%. Of note, 65% of the revenue generated was from non-cyclical, recurring activities.
Foxtons also reported that its acquisition of D&G Lettings in March 2021 delivered £5.3m of operating profit in 2022 and a 35% return on capital. The company invested £10.6m in lettings acquisitions in 2022.
Adjusted operating profit was 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. The company reported net free cash flow of £7.7m and year-end net cash of £12.0m.
While the company’s business foundations are strong, four core operational failings have negatively impacted its historical performance and prevented significant unfulfilled potential from being realised.
These failings include poor data accessibility and utilisation, outdated estate agency processes, insufficient headcount capacity and experience, and a lack of clear customer proposition and brand visibility in core markets.
To address these challenges, Foxtons has refocused its strategic priorities, underpinned by a new purpose, to support the delivery of medium-term growth ambition to deliver £25m to £30m operating profit. The company’s new purpose is to “get the right deal done for London’s property owners.”
The company’s refocused strategic priorities, with an emphasis on non-cyclical and recurring revenue streams, include delivering 3%-5% average annual organic growth and attractive returns on capital from portfolio acquisitions in lettings, achieving 4.5%+ share in its markets through building capacity and capabilities in sales, and achieving 7%-10% annual average revenue growth by maximising cross-sell opportunities in financial services.
Foxtons’ trading in January and February was in line with its expectations. The lettings market dynamic of low volumes and high rental prices has continued into 2023, with little change expected over the year, but year-on-year rental price growth rates likely to normalise.
The sales market is 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. However, the company expects that mortgage rates will reduce in the latter part of the year, which may result in a more favourable sales market.
Foxtons has made operational improvements in the last six months to improve front-end operations, including driving property instruction market share growth in both lettings and sales.
The company expects that 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.
The company has also announced its £7.4m acquisition of Atkinson McLeod, which is expected to be earnings enhancing in 2023.
Guy Gittins, group chief executive, said that while Foxtons has strong foundations, core operational failings have throttled historical performance and prevented significant unfilled potential from being realised.
He added that the company is making operational improvements at pace to rebuild its competitive advantages, including embedding a more confident articulation of its brand, investing in revenue-generating headcount, and improving its data platform to fully harness the power of its “industry-leading” database.
