McGrath Group revenue down 23 percent as estate agency says most difficult days are behind it

McGrath Group revenue down 23 percent as estate agency says most difficult days are behind it
McGrath Group revenue down 23 percent as estate agency says most difficult days are behind it

McGrath’s most difficult days are behind it, according to the listed McGrath estate agency boss Geoff Lucas.

But the board will not pay a final FY18 dividend saying McGrath’s dividends will be reinstated as soon as it is deemed prudent.

“With the new board and senior leadership team settled in, the last quarter of FY18 saw the beginning of a period of stabilisation, and we are in the midst of a business turnaround.

"We are already seeing good progress in culture and agent recruitment, and critically we are seeing some strong sales results within our key markets,” Lucas maintained.

However weak real estate industrywide conditions impacted sales volumes.

And their revenue was impacted by many internal factors including lower agent numbers and a decline in offices, particularly within the franchise network.

Agent numbers were down 99 to 558 with 8,065 sales from franchises during FY18 compared to 8,337 sales during FY17.

The number of company-owned offices declined to 26 from 28 over FY18.

The number of franchisee offices decreased to 69 from 74 in the prior year. 

There was a slowdown in the project marketing business with tightening regulatory conditions impacting investment demand.

There was also lower numbers of properties under management in the company owned network.

Managed properties declined to 7,215, driven by challenging conditions across the East Coast residential market.

The number of Oxygen Loans settled were at four year lows. 

At the end of FY18 there were 31 mortgage brokers supporting the network, a decline of five.

Even its industrywide AREC conference didn't exceed past record attendance levels.

The update to shareholders unveiled snippets of the strategy to turn the business around pinpointing a desire for agency growth in Victoria, Queensland and Western Sydney.

"Due to the difficult market conditions, lower sales volumes, and the departure of some of McGrath’s sales agents over FY17 and FY18, group revenue was down 23 percent to $99.2 million (compared to FY17)."

The lower revenue reduced underlying EBITDA to $5 million (before $4 million of one-off costs and $59.4 million of goodwill impairments), achieving market guidance.

"The ability of the business to generate positive earnings even after a $30.2 million reduction in revenue is testament to the robustness of the McGrath brand and position in the real estate industry," Lucas said, after a tumultuous year.

"The current property market conditions are challenging," he said. The revenue of company owned agents was down 32 percent.

"We will be concentrating our growth in predominantly franchised offices along the eastern seaboard, with particular focus on Victoria and Queensland.

"We will also be strengthening our presence in our existing company owned offices with an additional focus on the growth precincts around Western Sydney”, he added.

''We do believe the most difficult days are behind us, notwithstanding the current challenging residential market,'' Mr Lucas said.

The press release advised the new board and management team had put in place an operational plan that is "stabilising" the business, with early signs of positive momentum repositioning the business for a return to growth.

The shares were trading at 38 cents, edging up to 40 cents during morning trade having been floated in late 2015 at $2.10.

The FY18 (vs FY17) results overview:

  •   Revenue down 23% to $99.2 million

  •   Reported results reflect the impact of one-off restructuring costs ($4 million) and impairment charges ($59.4 million) – EBITDA of $1.0 million, and loss after tax of $63.1 million

  •   Underlying EBITDA of $5 million; achieved guidance

  •   Balance sheet with no debt and $10.9 million cash

  •   After the departure of some of McGrath’s sale agents, market share based on value was constant at 3.1% (source: CoreLogic, 30th June 2018).

     Over $12 billion of properties were sold by McGrath in FY18 with property sales volumes decreasing 14% to 11,067, impacted by the reduction in the number of agents.

During the reporting period, the board announced a number of changes to its composition which included:

  •   the resignation of Non-Executive Directors Cass O’Connor, Elizabeth Crouch, Nigel Dews and Cath Rogers;

  •   the appointment of independent Non-Executive Directors Peter Lewis and Andrew Robinson; and

  •   the appointment of Non-Executive Director Wayne Mo. John McGrath is not considered independent as he is an executive director and Wayne Mo is not considered independent as he is the CEO of AL Capital, a substantial holder of the company via Aqualand.

 

 

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

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