Transaction levels are set to be “significantly” below those of last year, and next year’s sales volumes will be lower still.
The forecast comes from Countrywide, which this morning issued a gloomy trading update covering the third quarter of this year. Shares plunged in initial trading this morning to below 165p, down from 193p, but recovered to just above 180p by 9am.
The UK’s largest agent said that its EBITDA (profits after costs and depreciation) for this year will be “around the lower end of market expectations”.
It said that at the end of September the pipeline across its “retail” business was down 16%, and in its London business down 26% compared with a year earlier – pointing to a bleak fourth quarter in terms of revenue for the business.
Countrywide said the fall in transactions – likely to end at 6% down this year – was due to a combination of the EU referendum and changes in Stamp Duty.
Its revenue fell in the third quarter to £188.5m, down from £197.1m for the same period last year.
However, revenue for the first nine months of the year totalled £558.7m, up from £535.7m for the same period last year.
The trading update makes only a fleeting and oblique reference to branch closures, saying that it aims to have “fewer, better brands”.
However, Countrywide said this morning that it is “delighted” with its online pilot and that branches in the trial had recorded consistent out-performance when measured against a control group.
CEO Alison Platt said: “We have made good progress this year despite tough market conditions since the EU referendum, particularly pleasing is our growth in market share in both sales and lettings based on available market data up to July.
“In addition, these results in our lettings, mortgage and professional service businesses underline the importance of the breadth of the group and the focus we have placed on keeping the customers we win and continuing to serve them.
“In light of the Chancellor’s announcement yesterday regarding letting agents’ fees, we look forward to working with the Government through this consultation process.
“The results of our digital sales pilot and the roll out of Fixflow in Lettings signal strong steps towards building our multi-channel network across the UK.
“Our work to ensure we have fewer, better brands and branches continues at pace.”
Separately, Belvoir released a statement to the stock market this morning, saying that gross profit will be impacted by yesterday’s ban on letting agent fees.
It says the impact is anticipated to be under 8%.
It said: “At this stage, Belvoir cannot fully predict the likely financial impact on the results for the year ended December 2017 and beyond. Based on the Group’s experience following a similar decision in Scotland in 2012, however, the Board anticipates that mitigating action should be possible over time and indeed it should be noted that no franchisees were lost in Scotland as a consequence.
“The Board believes that less than 10% of the income derived by franchisees is from fees to tenants and, due to the broader revenue streams to the Group, the impact on total Group gross profit is anticipated to be less than 8%. The impact may well be far greater for many of the large number of independent letting agents.
“The Board will review and assess the likely impact of these proposed measures and will provide further updates in due course.”
However, Purplebricks – also reporting to the stock market – said it does not expect the ban to have any “meaningful” impact on its business.
It told the City: “Tenant fees charged by Purplebricks are modest and highly competitive, when benchmarked against peers. Up-front fees for tenants are currently £175 (inc VAT) outside London and £209 (inc VAT) in London.
“Purplebricks does not charge renewal fees. Purplebricks anticipates that it can adapt the model swiftly and at minimal cost, and when combined with its low fixed overhead model and pricing structure, should prove even more attractive for landlords seeking excellent service and better value.”
Comments (20)
Do I hear the sound of shuffling coming from UK House in the West End? My sources would have me believe there’s another raft of ins and outs! So; year 2 of the ‘agency is retail’ revolution comes to a close. Millions spent on acquiring extra business; a good chunk of it ‘churns’ (I think that’s the term used for losing substantial amounts of what you’ve bought), performance is diving in tandem with morale so what shall we do? Reshuffle the pack that has brought us to this position! Genius!
I see the Beeb is reporting the odious Farage as saying last night:
“For those of you who aren’t particularly happy with what happened in 2016, I’ve got some really bad news for you – it’s going to get a bloody sight worse next year.”
Well thank you very much. You utter twunt.
If he is right – and he probably is – then I venture that CW will have an appalling first half to 2017 and that heads will roll. Not in the usual CW manner of a sudden discovery that they need to ‘pursue other opportunities’ but in a ‘shareholders call for blood’ kind of way.
Oh dear, I see the PIE smut filter has rejected the Farage moniker. It stood for ‘Tunbridge Wells Ukelele Night Thing.’
Let’s see if that gets through.
At the half year pre tax profit was around 10% of income at £37m. With around £20m potentially being lost when the lettings fees are banned, it would seem to me that this business needs more than a ‘purplebricks by another name’ solution to halt its relentless and inevitable slide downward. Once you adopt the ‘cheap fees’ method that is what you become and it is difficult to reverse that perception. Around 10,000 employees being led down a path that it is difficult to return from, if at all, by people with a skewed view on an industry they have little experience of. What about doing the right thing by the employees? It’s just ‘a few quid’ to shareholders; to thousands it’s their livelihood!
Well said Philosopher2467.
Dear Alison Platt, please ask your shareholders to thank you for piloting an online solution that takes your fees to £995 +VAT, slashing your previous average fee value. Maybe this is why your revenue has already fallen before yesterdays Autumn Statement, so with lettings now being hit, the revenue is likely to fall further.
This will be the survival of the fittest, if independents and others can hold their own and keep their heads above water for the next 18 months, my gut feel is that we will reap the rewards of a less crowded marketplace and by then the online experiment will be proven one way or another and, the venture capitalists will be licking more wounds. They have all been flattered by a boom market, we saw the same with the banks/insurance companies/building societies in the 80/90’s. If they are right, we will see you in ‘the cloud’ in big city centers, elsewhere we will still be on the High Street.
It’s actually £995 Inc. VAT!
Purplebricks – also reporting to the stock market – said it does not expect the ban to have any “meaningful” impact on its business.
It won’t have any meaningful impact on my mother either, but then like PurpleBricks, she does no lettings business either.
Yes indeed with the grand national total today of 427 instructions the impact is fairly minimal for Bricks You have to give it to old Bruce he dies try to spin any event into some form of positive indicator for Bricks What it does do of course is show that their lettings service is no chepaer than you can get from a grounded letting agent Seems to be a lose lose situation for instructing Bricks
96000 ish rented units; £20m is likely to be the reduction in revenue at Countrywide as a result of abolition of tenants fees. I wonder whether the income reported includes the £29m proceeds from the zoopla shares sale. I suspect it was to prop up some appalling figures. It is time to accept that the management of Countrywide is not up to the job. It is Prudential all over again albeit without the financial muscle that that particular organisation had. Shares are in free fall!
It’s hard to understand how with those mouthwatering colossal turnover figures, countrywide can have so many issues and problems. What is it ?30 times that of PB.
There must be such huge inefficiencies in the system …..or perhaps they just need to learn better, more efficient systems that many independents utilise.
It’s not about turnover; it’s about leftover!!!!!
They have just announced that Ian Mackenzie MD of the southern region will leave and also another regional manager in the Surrey/Hants area will go. It is these layers of non income producing people that suck the profitability out of the business, big salaries and cars but no real reason to be there, the branches will continue to operate without them.
Platt making a quick sidestep by not referring to the likley impact on loss of income from the abolition of tenants fees .What it does do of course it brings sharply into focus their flawed strategy of expansion by chequebook . .Those agencies primarly focussed on lettings would have been acquired in recentv years by CWD for capital sums at prices reflecting future receipts If Belvoir’s.figures are correct ie a loss of 8% in gross profits -they have overpaid . The weighty debt burden that CWD carry looks even more dificult to shift
Take a look at Countrywide share price in corolation to Ms Platt being CEO share price has tumbled, her little experiment on how to run an estate agency has been nothing but tragic.
The big mistake she and others are making is believing the stuff people like Chris Welch and Stephen Jury have made up and had published by journalists (who don’t bother to check facts) to promote products they don’t really understand
Take City AM with that cobblers from Bruce earlier in the week, they didn’t check a single fact yet issued a glowing endorsement to all the sheep Bruce set out to shear!
How about someone gets hold of “serial entrepreneur and business man James Caan from TV’s Dragon’s Den” to see how his investment in the sector is shaping up.
When you view the business as a retail business and not believe the public still see you as an Estate Agent it’s hardly surprising you end up with a mess.
Look at the directors on CW one worked for Woolworths and Dixons and another worked for Dixons. Hardly surprising with those creditials that CW is turning out to be another High Street failure.
Who remembers when the yellow pages were so thick you used them as a step up. Time they got around to producing an online presence it was too late. Now a small online presence and the yellow pages are like the size of a weekly magazine.
CW attempt to become an online force is like turning up to party 3 hours late. Anyway Alison will always have Tesco to fall back on.
When you’re a low fee model and you even have those fees taken away from you…
The only notable light visible is courtesy of Fixflo, well done Rajeev!
A great idea superbly executed…..and that’s from someone looking from the outside who doesn’t do lettings.
I am not taking anything away from Rajeev by saying he is simply filling a gap left wide open by complacent legacy systems, his success is a reflection on how poorly served agents are by their existing suppliers.
I’m fairly confident Rajeev with his unavoidable likeability and focus is best placed to rescue the industry from a crisis it isn’t even aware of.