Countrywide’s profits in sales and lettings plunge – and it says goodbye to its digital offering

Countrywide plunged deeply into the red last year, making a statutory loss of over £208m compared with a profit of £17.5m the year before.

Its earnings fell 23% last year, while profit in its sales and lettings division plummeted 45%, according to its full-year annual results published this morning.

The group’s after tax loss of £208.1m last year principally reflected write-offs, and costs of restructuring including redundancies.

Countrywide said that there had been £225.9m worth of exceptional charges for goodwill, intangible and other “asset impairments”. Redundancies cost up to  £7.9m.

Group income fell to £671.9m for the year, down from £737m in the year before, and the company will be paying no dividend.

It also announced that it has scrapped its digital offering, while there will be staff cuts at head office. About one-third of the 450 employees face losing their jobs.

In early trading today, the share price slumped 16%, and shortly before 9am, stood at about 75p.

Adjusted EBITDA was 23% lower at £64.7m  (2016: £83.5m), which was driven by poor performance in its sales and lettings actitivies.

Countrywide said this was the “third consecutive year of under-performance in this core area” and warned of more pain to come.

Adjusted EBITDA in its financial services division in 2017 also fell, down to £19.7m from £22.7m the year before.

Countrywide said that while the poor performance in traditional high street sales impacted financial services as a result of less referred business, it had picked up growth in “alternative channels”, resulting in the value of total mortgages arranged rising by £2bn to £17.7bn.

It also hailed a “strong” performance across its B2B arm, with a 13% increase in adjusted EBITDA to £35.6m (2016: £31.5m) driven by surveying and its commercial business, Lambert Smith Hampton.

Meanwhile, executive chairman Peter Long added that the business has entered 2018 with its pipeline “significantly below that of 2017” and that the first half of the year this will result in a reduction in adjusted EBITDA of around £10m.

He said: “At this time, it is unlikely that the shortfall in the first half will be recovered.”

Speaking about the company’s performance in 2017, he added: “The under-performance of our business over the last three years has resulted in us making significant management change in the group.

“Industry expertise in all areas of our business is key.

“Within sales and lettings, the previous strategy resulted in us losing a lot of that expertise.

“In the group, we are fortunate in that we have an industry veteran, Paul Creffield, who has been promoted to the role of group operations director.

“His deep understanding of the market and operations means that we have quickly been able to identify what we need to do to begin addressing our under-performance.

“I am greatly encouraged by the number of high calibre industry business leaders that we already have within our sales and lettings business and a number of similarly experienced and high calibre industry people who previously left us and want to rejoin now that Paul is in this role.

“Fundamentally, Countrywide has a unique market position given its breadth within the property services industry.

“We have established and trusted brands that resonate with customers, together with dedicated and committed colleagues who are the cornerstone of our business.

“The strong areas in the group, financial services and B2B, have unfortunately been overshadowed by the poor performance in our core sales and lettings business units.

“We believe these business units are fixable, know what we have to do to restore them and the steps to take that should result in a return to profitable growth.

“This will take time but ultimately there will be much upside for our group and our shareholders, whose patience has been sorely tested recently.”

Intriguingly, the results issued this morning refer to the departure of its chief executive on January 24 this year – but does not refer to Alison Platt by name.

The report essentially, however, rips apart what the previous management did, with criticism of the “retail model”, which meant the group had moved to a “one size fits all” model, when “it was, and should be, an entrepreneurial culture and business.

There is also criticism of “our foray into digital”.

The report says this “hybrid fixed fee offering served only to dilute our full service proposition.

“We have withdrawn the hybrid digital, fixed fee offering. We need to define what digital means for us as an organisation and this will be determined as we build the detailed recovery plan.”

Today’s results also say that “good people” who left under the previous management now want to go back and work at Countrywide, under Creffield.

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19 Comments

  1. Typhoon

    “Fundamentally, Countrywide has a unique market position given its breadth within the property services industry.”

     

    Nearly Bust!

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  2. AgencyInsider

    ‘We have quickly been able to identify what we need to do to begin addressing our under-performance’ says chairman. Wow! Have you had some sort of Damascene conversion. Have the scales fallen from your eyes. Or are you really saying you have been living under a stone for the past two years?

    Although Platt must take a large part of the blame for the sinking the collective Board appears to have sat on its hands whilst the ship ploughed on into the reef, holed below the waterline and sinking fast.

    None of them should still be there as they have proved themselves collectively incapable of running a company of this size.

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  3. Bless You

    Wow. Perfect example of CEO with no real penalty apart from a bit of lost pride. Does she get claw back?

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  4. Hillofwad71

    Great brands, talented staff ,inept BODS  who went along with Platt and failed to take action sooner decimating shareholder value . 

    In addition as an exceptional item  they have written off over £200m for monies paid out for “goodwill” which disappeared through the door  and restructuring costs which is  testament to their failure to halt acquisitions sooner.

    Debt still  remains at 2.97 x EBITDA   which sounds  less than £192m !! How can they trim that?

    The BODS also have the brass neck to say they waited til the last quarter of 2107 to analyse what was  going wrong .Asleep  on the job

    ” In the fourth quarter of 2017 an analysis was undertaken of the Sales and Lettings businesses led by the chairman, Peter Long, to understand why the strategy, which had been pursued from 2015, was not delivering growth and had in fact resulted in Sales and Lettings losses ”

    It looks as if Creffield  will remain as the person whose shoulders the heavy burden of sorting this out  and  maintaining unity. You  have  to raise the question  why did he not raise the red flag sooner when this was clearly going wrong? Revenue already being flagged up as falling in 2018 . LSH seem to be the only saving grace They can only hope that they can  keep their talented staff there  sweet

     

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    1. Philosopher2467

      A £200m of goodwill writeoff gets the balance sheet going forward looking better?
      Might as well get most/all the ‘bad news’ out of the way in one if you’re going to have to broadcast it as PLC’s have to.

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      1. Hillofwad71

        Yes  ,I agree but still shows the foolhardy strategy  of buying turnover expensively which vanishes leaving the debt intact  Many posts on CWD dwell on the sum of the parts  greater than the whole  theory LSH are the shining lights
        I guess  drawing reference to Strutts sale to BNP  Paribas last September for a rumoured £100/120m LSH could be worth up to  £195m.In other words cancelling out the  debt  but then the cash cow disappears  

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  5. Philosopher2467

    Mmm ““I am greatly encouraged by the number of high calibre industry business leaders that we already have within our Sales and Lettings business and a number of similarly experienced and high calibre industry people who previously left us and want to rejoin now that Paul is in this role.””

    I’m not so sure about the former because if that was so, the performance and morale wouldn’t be as poor as it is and, if the latter is true; I suggest they are brought back ‘pronto’ so that the continuing slide is arrested.

    If the shareholders and banks have the patience and the management has the experience and expertise, there is no doubt imo that profitable performance can be restored.

    afterall; it’s not ‘rocket science’, or retail come to that!!

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  6. PepeM

    Certainly not good but perhaps worth noting that in spite of this, their profits are still significantly more than the whole of the “online” sector put together ! 

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    1. Moveaside01

      What a fantastically good point PepeM, this item was just waiting for someone to point this out!

       

      Take a bow PepeM…..

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  7. Charlie Wright CIELA

    “The hybrid fixed fee offering served only to dilute our full service proposition.”

    It’s really difficult to understand how an organisation the size and age of Countrywide didn’t know this already.

    As I explained in my LinkedIn piece yesterday, you cannot commoditise personal service. It’s one thing when Venture Capitalists make that mistake, but quite another when the industry’s biggest, oldest company loses sight of the essence of what they do.

    https://www.linkedin.com/pulse/when-vcs-learn-cant-disrupt-resi-property-charles-wright/

     

     

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  8. Thomas Flowers

    Interesting.

    So to round off.

    For every £10 million in turnover CW make less than £1 million profit or thereabouts.

    For every £10 million in turnover PB make less than £1 million in profit or thereabouts.

    The main difference between the two is that CW, for the most part, have to actually sell or let a property.

    So why is PB’s share price and market cap 4/5 times higher than CW when they are producing similar EBITDA profits as a % of turnover?

    Should PB’s share price, therefore, be similar to CW’s at 79 pence?

    For every £10 million in turnover RM make £7.5 million profit. This needs to change.

     

     

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  9. ValueCounts31

    100% Self-inflicted by Countrywide. They lost sight of their ‘Why’ and ‘Core Values’ and reacted to Purple Brick’s game.

    Foxton’s average fee has actually marginally increased per transaction. Their transaction volumes have dropped almost exactly in line with the overall transaction volume drops in London and that directly justifies the drop in profit. Their fee structure has essentially made no difference to their market share. Makes complete sense. Foxton’s will weather this tough market just fine.

    Countrywide’s average fee per transaction has dropped as well as the overall transaction volumes dropping. This has led to a double negative impact on their margins. If they’d played their own game (as Foxton’s has) and compete on service, not price, they would be in a stronger position to weather a tough market and focus on what matters. Excellent customer service and an efficient no, sale, no, fee model.

    This may be a silly point, but Predatory Pricing comes to mind. These unjustifiably low fees, worse unclear low fixed fees have meant almost all online agents working to such pricing models run at a loss. All their fees over time have increased demonstrating their economic misjudgment, but not without the cost of creating a unsustainable expectation on fees that have pushed many good agents out of business.

    Anyone have any thoughts on this?

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    1. cyberduck46

      ValueCounts31,

       

      >Anyone have any thoughts on this?

       

      Where does the online agent market share come from if it isn’t traditional agents?

       

      Perhaps CWD were more sensitive to this than Foxtons as they are National and this influenced their approach. When I last checked (admittedly some time back) PurpleBricks had a particularly high market share in the West Midlands. Perhaps CWD saw this as a sign of the future being that the West Midlands was one of the first areas where PurpleBricks operated?

       

       

      Personally I wouldn’t write the online sector off just yet. Growth might be slow at present but this doesn’t mean it always will be. Even if it is slow then it’s still going to affect things. Still early days and in PurpleBricks’ case current market share already generates a profit when you exclude overseas expansion.

       

      Also, interestingly LSL have taken a stake in YOPA and seem in a much healthier current position than CWD.

       

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      1. ValueCounts31

        Agreed on your points cyberduck46. I’m interested to see how it unfolds.

        Online agents market share at circa 5-7%. Is that disruption? Again super excited to see how this unfolds.

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        1. Room101

          I’m super excited to see ANN smashing into the online brigades parade of circa 5-7%

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    2. Philosopher2467

      I think that Countrywides foray into the ‘digital’ (agency light) sector was because Ali Pali and (not so) ‘Super Sam’ used that as a lifeboat as their ‘retail’ experiment was failing big style and they were devoid of ideas and they didn’t have the common sense to ask those that know what they were doing in resi agency to step in and save them!!!! More fool them as their reputations are trashed as they have done with the company. However; with the correct investment in the right people; Countrywide can recover to profitability and relevance.

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  10. WestMidsValuer97

    Yawn. It’s only what they deserve. Big boy bully in the marketplace, taking their first fall. Every dog gets it’s day!!

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  11. oldlettingsdirector10

    Yawn, I agree with you. However I think the many good people who were left when I did a few years ago deserve more. Many I am sure will see the opportunity to re build that business very exciting. I expect many an ambitious person will be able to seize the opportunity. Mr Longs comments seem to be spot on and I think they have learnt their lesson.  With Creffields running the show now I think it is in safe hands.

    Fantastic brands – They will recover – I am very sure of that.

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  12. citywise23

    Countrywide continue to try and pull the wool over their most valuable asset….. their people…..  yes good people have left, yet Long and Creffield, announce further redundancies at head office !!! So more Good people are shed, and then to contradict the message they state good people who left previously, are queuing up to return !!! ARE THEY REALLY, ? The value is with those loyal hardworking individuals fighting to keep the titanic afloat…. look inwards Mr Long and Mr Creffield at what you have before it’s too late, although I fear that junction may have passed them by, very sad.

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