McGrath revenue falls 17 percent as vendor hibernation continues
With its annual revenue down by 17 percent, McGrath Limited has delivered another big annual loss.
Its property sales volume fell 16.8 percent during the financial year.
Despite the 1854 fewer house and apartment sales, McGrath claimed it was maintaining market share by sales value, albeit its 2.8 percent still well behind market leaders Ray White (8.1 percent) and LJ Hooker (3.9 percent).
There was no sign of any increase in listing activity in August, however its chief Geoff Lucas forecast a return to revenue growth at some stage in the current financial year.
"The fall in revenue by 17 percent isn't desirable nor are we comfortable with it," Lucas said.
Lucas noted it was due to "difficult market conditions."
The disruption of its lower north shore Sydney operations following its termination late last year triggered a severe drop in NSW market share by sales volume and sales value. "This is expected to be a short impact only," Lucas said.
McGrath ended their franchise agreement on the Lower North Shore over Christmas. It has had just the five sales this year headlined by the Lucas household earlier this month.
Fewer sales at its company owned sales was pinpointed as the major contributor to the overall decline in earnings - both a reduction in the number of properties sold and the value of the properties sold.
There were $3.7 billion in sales from 2,655 sales in the latest FY19 at company owned offices.
It compared to $4.6 billion from 3,002 sales in FY18.
The franchise network exchanged 6,558 properties during FY19, down on FY18 when there were 8,065 sales.
During the year there has been a net reduction of two franchise offices with six closures, five openings and one transfer to the company owned sales network.
Its auction services division had 4,835 auctions booked in FY19, down on FY18 which had 5,894 bookings.
Auctions represented 39% of all properties listed.
The report revealed an impairment of $3.4 million in relation to an intangible IT asset.
McGrath had been developing an integrated customer relationship management (CRM) tool and operations software since 2016.
But shareholders were told the CRM’s functionality "appears to be weaker than other mature CRM’s already available in the market" leading towards a strong preference to pursue alternative management software solutions that will better serve the McGrath business, clients and personnel.
In addition to the asset impairment, an onerous contract of $3 million has also been recognised in relation to non- cancellable contracts associated with the CRM platform.
Its total group revenue fell to $82.7 million amid the weakened real estate market, down from $99 million.
The cost of sales declined from $38 million to $34 million.
The agency saw a small decline in its staff across its 30 company owned offices and 67 franchise offices with 525 agents operating within those offices as at June 30.
Staff number decreased from June 2018 when there were 558 staff.
The latest departee is Henry Hodge in Brisbane.
Its property management business has over 32,000 properties managed for more than 28,000 landlord investors.
Properties under management within the company owned offices increased by 6 percent to 7,627 in FY19, generating $5.4 million EBITDA, a 12 percent decrease on FY18 due to lower rental value per property.
Its underlying EBITDA loss of $6.4 million, which sits is within guidance provided in its June update.
It reported an EBITDA loss of $10.1 million after the impact of onerous contracts expense of $3.7 million.
The net loss after tax of $15.6 million is after the impact of one-off impairment charges of $3.4 million.
It continues to have a strong balance sheet with no debt and $10.3 million cash.
Founder John McGrath draws a $552,000 package and the CEO Geoff Lucas is on $588,000.
Its departed sales manager Kon Strathopolous earned $528,000 in his last year having left in early June.
Its mortgage broker, Oxygen Home Loans saw total settlements value of $755 million which was down 3 percent on FY18. At the end of FY19, there were 30 brokers, a decline of one from FY18.
It was noted Total Real Estate Training (TRET) which presents the AREC conference had been impacted in line with the challenging market conditions.
McGrath shares fell in morning trade to 23 cents.
Lucas signalled his aspiration for McGrath to be "market leader within five years."