Countrywide warns on 2019 but claims 'five pillars of progress' in recovery

Countrywide's report to shareholders this morning warns that the residential market is heading for a difficult 2019 which may hit the company's performance - but it insists it has made "significant operational progress" in the past year.

It says it has seen:

- the build back of expertise is now largely complete with a full complement of staffing and separate sales and lettings expertise at regional and branch management level;

- the register of properties available for sale in UK Sales and Lettings up nine per cent year on year;

- the pipeline of agreed sales awaiting exchange of contracts in UK Sales and Lettings up five per cent having begun the year with a 21 per cent opening pipeline deficit;

- income from complementary services for each £1 of estate agency income for the year was 44p (2017: 38p).

But executive chairman Peter Long says in this morning's statement: "We encountered market weakness in Q4 due to the further uncertainties surrounding Brexit which is affecting both our sector and consumer confidence as a whole.  These headwinds have continued into 2019.  As a result, we are experiencing further slow-down in residential and commercial property transactions particularly in London and the South, which will affect our H1 EBITDA by some £3 - £5 million. 

"Whilst we expect full year EBITDA to be broadly in-line with 2018 (after mitigating the impact of the ban on tenant fees of £9 million), it is contingent on recovering the H1 shortfall in our traditionally stronger H2.  As a Group we are in a stronger position than we have been for some considerable time with sound business fundamentals and, despite the difficult market conditions we are facing, we remain confident in delivering our turnaround.”

Here is the core of its report on its Back To Basics programme this morning, outlining its recovery strategy since the departure of former chief executive Alison Platt:

Our three-year recovery plan progress

As our executive chairman, Peter Long, has commented, our three-year plan comprises of five key pillars and I am delighted to be able to report on progress against each of these:

1.     "Back to basics" in Sales and Lettings: We advised the market at the beginning of the year of our intention to build back staffing and expertise in our Sales and Lettings business at regional, area and branch level. We shared our plan to separate our service lines of Sales and Lettings to report into dedicated management to help us achieve the right level of support and direction for each business area. I am delighted to say that this has been achieved, and at regional level we now have 89 regional directors in post, all of whom are very experienced in their fields of operation. We also welcomed back over 300 colleagues who had previously left the business.

We have decentralised our business and significantly reduced our overheads and re-invested the cost savings to fund the build back in front-office and experienced staff. In addition, our local management have been empowered with marketing and people budgets so they can better react to local market conditions.

As a result, we have seen our market share of listings grow from 7.29% at the beginning of 2018 to 7.73% in December. This translates through to our UK trading Sales business seeing their register of available stock up 9% year on year. 

2.     Income from complementary services; In a tough trading environment, we are well placed with our Group businesses to improve sales of complementary services which include; conveyancing and the provision of mortgages, insurance and protection products to both our buyers and sellers. We stated that this will be a core focus for us. We entered 2018 with complementary services income generated by our Sales business at 38p for every £ generated in Sales income. I am delighted to state that at the end of 2018 we achieved an average throughout the year of 44p in the £, an increase of 16%. We intend to build upon this success over the next three years.

3.     Cost efficiency: Our plan is to invest in our IT infrastructure and applications which have lacked investment over the years. As a result, the operating costs grew dramatically on an aged IT estate. We also committed to invest in our processes and contact centres to modernise and improve customer service alongside reducing operating costs. This is a three-year programme and I'm pleased to say we are tracking in line with the plan. 

We have also committed to reducing further our central overheads and driving efficiency from our central functions. During 2018 we reduced our central function costs by 14% year on year and we expect further savings over the three-year plan period.

4.     Continued growth in B2B and Financial Services: Our B2B businesses delivered a resilient performance in 2018. Our Conveyancing business is starting to see their pipeline grow and will benefit from the additional instructions through the complementary services offered to customers. Our commercial business, Lambert Smith Hampton, is experiencing significant slowdown in its transactional market as a result of the political and economic uncertainty surrounding Brexit. The new homes business is particularly exciting as we have been winning many new schemes that will mature through to release and sale in 2019 that will boost our exchange numbers moving ahead.

Our Surveying business was affected in Q4 as mortgage lending by our key clients reduced, but since Christmas we are seeing a significant upturn in their lending. Overall the Surveying business delivered a good performance in a challenging market and we are well positioned for 2019. 

Prior to 2018 we experienced an overall decline in the focus of our Financial Services business within Sales and Lettings. This was largely due to the amount of changes in the UK Sales and Lettings business, and as a result we have seen a reduction in our mortgage and protection consultant (MPC) headcount this year. This has impacted performance in our core branch-based Financial Services business but we are confident this will return as headcount is being built back and an improved retention plan introduced. Other specialist network and Financial Services businesses moved ahead year on year. I am also delighted to report that in 2018, we placed over £20 billion of mortgage business, a new record for the group. We expect further growth in this exciting business as we launch further initiatives to improve the penetration of our remortgage business for customers who previously obtained their mortgage through us. As we sell more properties, this will deliver further opportunity to grow the written mortgage numbers.

5.     Financial discipline and cash flow: Good progress has been made on our approach to working capital management and an investment committee now oversees our investments. We are prioritising investment into our IT estate, contact centre modernisation and our branch network. 

Debt collection has received strong focus through 2018 and debtor days have reduced in our commercial business, Lambert Smith Hampton.

The capital refinancing, together with our focus on working capital management, resulted in net debt for the full year down to £70.7 million and net debt to adjusted EBITDA ratio of 2.2x.

Summary: Significant progress was made in 2018 as we reset the strategy and delivered a capital refinancing plan that gives us the stability and flexibility to execute our three-year turnaround plan. Having built back our industry expertise and staffing levels within our Sales and Lettings business, we now have a register and pipeline that is in positive territory and gives us the solid trading base to move forward. External factors will continue to challenge the industry, but the long-term UK housing market fundamentals remain strong. As we look ahead long-term, we believe that we have the right strategy in place to maximise these opportunities.