Foxtons has announced a worse than expected fall in profits. It had been widely expected to unveil a halving of profits, down to £8.9m, but this morning the firm said that pre-tax profits for last year were £6.5m, down from £18.8m in 2016.
Group revenue was also down, from £132.7m in 2016, to £117.6m last year. Revenue from sales was particularly badly hit, down 23% at £42.6m as a result of continuing low transaction levels.
Foxtons described its lettings performance as “resilient” but revenues from lettings were also down, 3%, to £66.3m as London rents fell.
During last year Foxtons opened two new branches and said its network now covers 85% of the London market. However, Foxtons said its branch expansion programme is now complete, and last year it incurred £2.3m charge in respect of aborted branch openings.
This morning Foxtons also announced that it will be now be investing in technology to expand its branch reach, making its existing estate more profitable. It said it believes it will be able to service the whole London/M25 network from 70 branches, a smaller network than originally envisaged.
CEO Nic Budden said of the results: “Sales activity in the London property market is near historic lows and this had a significant impact on our overall performance in 2017.
“Our large and less cyclical lettings business continues to provide a solid recurring revenue stream which adds resilience to Group revenues. Landlords, under increasing pressure from regulation and taxation need a professional agent to help with compliance and yield maximisation and we are well placed to deliver against these key requirements.
“Growing our lettings business is a priority for Foxtons and we have already seen some encouraging results from the introduction of new customer initiatives and our use of technology and data; we aim to build on these going forward. We anticipate the implementation of the Tenant Fees Bill in 2019.
“Though at this stage it is unclear exactly what the legislation will look like, we are exploring ways to mitigate the impact.
“Estate agency is fundamentally a people business and we know that our customers want to deal with knowledgeable, experienced and committed people who will deliver results throughout the complicated process of selling or letting a property.
“Additionally, our brand is a cornerstone of the business prompting awareness and associating customers with consistent, high levels of service across our network. Technology can amplify these important areas and as our branch expansion is now complete, further investment can be made in our brand, people and technology to extend our market leading position.
“Looking ahead, we expect trading conditions to remain challenging during 2018, and our current sales pipeline is below where it was this time last year. The cost actions we have taken and our net cash position mean we are well placed to withstand these conditions and make the investment we have identified.
“We are confident that our high-touch approach to customer service and knowledgeable people delivers tangible results for customers differentiating us from the competition.
“The London property market has attractive long-term characteristics and our brand strength, coverage and approach, position us well to manage through the current market uncertainties and take advantage of any future market recovery.”
City analyst Anthony Codling said: “Foxtons expects the London sales market to remain tough in 2018, and early indicators are that so far 2018 has been tougher than 2017.
“However Foxtons remains a fighter and is investing in brand, technology and people to aid profitability in a tough market. Costs will therefore rise in 2018 whilst revenues will remain under pressure. In our view a case of short term pain for longer term gain.”