The struggling online estate agency has just provided an update on trading in respect of the financial year ending 30 April 2023 (“FY23”), and announced the commencement of a strategic review, and that means evaluating options including whether Purplebricks and shareholders would benefit from a different ownership structure.
Purplebricks insists that whilst it is now now in an ‘offer period’ no offer has been made and they are not in talks with any potential offeror.
The company says that the reduction in FY23 expectations is a result of widely speculated market share losses in Q3 (Nov – Jan); these have been caused by disruption from plan implementation to achieve the necessary cost savings (now £21m) and process changes.
Purplebricks adds that very limited additional information that can be provided as the firm has now come under the remit of the Takeover Code.
Purplebricks states: “As a consequence of this announcement, an ‘offer period’ has now commenced in respect of the Company in accordance with the rules of the Code and the attention of shareholders is drawn to the disclosure requirements of Rule 8 of the Code, which are summarised below. The Company is not in talks with any potential offeror and is not in receipt of any approach with regard to a possible offer.”
PB Trading Update
Since the Group published its Interim Results on 8 December 2022, implementation of its turnaround plan has continued at pace. A key component of the turnaround plan in Q3 FY23 was the implementation of Purplebricks’ revised go-to-market strategy, which aims to focus resource and investment into the regions which are currently profitable and those where there remains the largest opportunities for market share growth. Implementation has taken place but it has involved more disruption to the sales field than originally envisaged in order to achieve the required cost savings and efficiency improvements. This process has resulted in approximately £1.2m of one-off exceptional costs being incurred in H2 FY23 to date. As a result of this disruption, the instruction numbers achieved in Q3 FY23 were lower than the Board’s previous expectations.
In response to the lower instruction levels, the Board has proactively identified £4m of further annualised cost savings in addition to those communicated at the time of the Interim Results. These additional savings will be achieved by streamlining the lettings business and more conservative investment in the ramp up of the mortgages business. The restructured sales field operation is now benefitting from the leadership of the Group’s new Chief Sales and Marketing Officers, who both joined in January 2023. Purplebricks also implemented a fee increase on 1 February which will increase ARPI going forward.
Notwithstanding the positive operational changes made for the long term health of the business, the impact of lower instruction levels during Q3 FY23 has resulted in the Board revising its expectations for full year performance.
The Group now expects to deliver revenue for FY23 of between £60 million and £65 million, and an adjusted EBITDA loss of between £15 million and £20 million.
As a result of its turnaround plan, the Group continues to expect positive cash generation in early FY24.
PB Strategic Review
The Board believes that Purplebricks’ business and brand has significant value. The Purplebricks brand benefits from over a decade building best in class brand recognition within the UK estate agency market. The Group, through its turnaround plan, is positioning itself well for the future, having laid the foundations to invest in existing and new revenue streams, such as lettings and financial services, and thereby generate material long term profitability and cash flow.
The Board recognise that the potential of the Group may be better realised under an alternative ownership structure, and has, therefore, decided to conduct a strategic review of the Group’s business (the “Strategic Review”) with the aim of delivering maximum value for shareholders. The Group has appointed Zeus as its Financial Adviser to assist with the Strategic Review. The outcome of the Strategic Review may or may not result in a sale of the Company or some or all of the Group’s business and assets.
As a consequence of this announcement, an ‘offer period’ has now commenced in respect of the Company in accordance with the rules of the Code and the attention of shareholders is drawn to the disclosure requirements of Rule 8 of the Code, which are summarised below. The Company is not in talks with any potential offeror and is not in receipt of any approach with regard to a possible offer.
Helena Marston, CEO, said: “We have undertaken a huge amount of work in the last 9 months to improve our sales business, raise standards, establish Purplebricks Financial Services, and stabilise lettings, all of which means the Company has never been in better shape for the future. Yes, the actions we have taken have caused more short-term disruption to our Q3 performance than anticipated, but we remain confident in returning to positive cash generation in early FY24. We recognise that our upside potential is not currently reflected in our market valuation, which is why the entire Board has therefore concluded that a strategic review is now in the best interests of all shareholders.”
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