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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Countrywide Plc | LSE:CWD | London | Ordinary Share | GB00BK5V9445 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 394.80 | 394.80 | 395.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMCWD
RNS Number : 0999S
Countrywide PLC
07 March 2019
Countrywide plc
('Group'/the 'Company')
Preliminary statement of annual results for the year ended 31 December 2018
2018 A YEAR OF RESET AND SIGNIFICANT OPERATIONAL PROGRESS
2018 was a year of reset for the Group. Significant progress was made on the implementation of our "back to basics" principle in Sales and Lettings first announced in early 2018 and the Company's recapitalisation, completed in August 2018, ensured that we have the right long-term capital structure in place to focus on our three-year turnaround plan.
Operational progress in building back industry expertise within Sales and Lettings has supported growth in the register(1) of properties available for sale, improved the pipeline(2) of agreed sales in the UK and increased income from complementary services:
Hot Features
Premium
-- 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
was up 9% year on year.
-- The pipeline of agreed sales awaiting exchange of contracts in
UK Sales and Lettings was up 5% having begun the year with a 21%
opening pipeline deficit.
-- Income from complementary services for each GBP1 of estate agency
income for the year was 44p (2017: 38p).
As a result, we are pleased to report the Group's underlying trading (excluding GBP2.2 million of net charges unrelated to current trading) was in line with the Board's expectations at GBP34.9 million with net debt of GBP70.7 million and net debt to adjusted EBITDA of 2.2x.
FINANCIAL RESULTS FOR THE TWELVE MONTHSED 31 DECEMBER 2018
-- Group income for the full year was GBP627.1 million, down 7%. As
previously reported, this was principally driven by the opening
pipeline deficit in Sales.
-- Group adjusted EBITDA(3) was GBP32.7 million, down 50% and includes
GBP2.2 million of net charges, unrelated to current trading, resulting
from a review of the carrying value of certain assets and liabilities.
-- Loss after tax of GBP218.2 million (2017: GBP207.3 million(5) )
reflecting GBP245.4 million of principally non-cash exceptional
charges for goodwill, intangible and other asset impairments.
-- Net debt: Net debt at 31 December 2018 was GBP70.7 million (2017:
GBP196.4 million), with net debt to adjusted EBITDA of 2.2x (2017:
3.0x)
Year ended 31 December Underlying(4) Statutory
GBPm 2018 2017(5) 2018 2017(5)
------ -------- -------- --------
Income 627.1 672.8 627.1 672.8
------ -------- -------- --------
Adjusted EBITDA(3) 32.7 65.6 n/a n/a
------ -------- -------- --------
Profit/(loss) for the
year 4.5 20.2 (218.2) (207.3)
------ -------- -------- --------
Earnings/(loss) per share
(pence) 0.6 8.7 (30.8) (89.3)
------ -------- -------- --------
Commenting on the results and outlook, Executive Chairman, Peter Long said:
"We have been encouraged by the progress made in 2018 in resetting the business as part of our return to growth strategy. The principles within "back to basics" in Sales and Lettings resulted in growth in the register and the sales pipeline in the UK, coupled with an increase in market share of listings.
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 GBP3 - GBP5 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 GBP9 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."
Enquiries:
Analysts and investors
Himanshu Raja, Chief Financial Officer investor@countrywide.co.uk
Media
Natalie Gunson press.office@countrywide.co.uk Tel: +44 (0)7721 439043
Michael Sandler/Dan de Belder, Hudson Sandler
Tel: +44 (0)207 796 4133
Conference call and Notes to Editors:
The Company will be hosting a teleconference at 9:00am (GMT) this morning to discuss the results with slides available by registering at:
https://webcast.merchantcantoscdn.com/webcaster/dyn/4000/7464/7467/111483/Lobby/default.htm. This will be available to listen into by dialling +44 (0)20 3003 2666 or 0808 109 0700, password Countrywide. A recording of the webcast will be available for seven days by dialling +44 (0)20 8196 1998 - pass code: 2308662#. For further information on Countrywide plc, please visit our corporate website at www.countrywide.co.uk.
This document contains certain statements that are forward-looking statements. They appear in a number of places throughout this document and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and, unless otherwise required by applicable law, the Company undertakes no obligation to update or revise these forward-looking statements. Nothing in this document should be construed as a profit forecast. The Company and its directors accept no liability to third parties in respect of this document save as would arise under English law.
(1) (Register is the available number of properties for sale)
(2) (Pipeline represents the sum of the total future fees from agreed sales subject to contract in the hands of solicitors)
(3) Earnings before interest, tax, depreciation, amortisation, exceptional items, employment-linked contingent consideration, share-based payments and share of profits from joint venture, referred to hereafter as adjusted EBITDA (see note 4 for reconciliation)
(4) Excludes exceptional items, amortisation of acquired intangibles, employment-linked contingent consideration and share-based payments (net of taxation impact for basic EPS)
(5) Restated from prior year following the adoption of IFRS 15 and the correction of a prior year error (see note 2)
EXECUTIVE CHAIRMAN'S STATEMENT
2018 was undoubtedly one of the most challenging years that the Group has faced. It was one where, to ensure the future success of our business, we made extensive management changes, reset our strategy and implemented a capital refinancing plan. These measures allowed us to put in place the strategic levers for our three-year turnaround plan.
The retail-centric strategy, centralised decision-making and significant investment in head-office based functions that was introduced in the business in October 2015, together with a significant increase in the Group's indebtedness as a result of acquisitions, dividend payments and share buybacks, resulted in a sharp loss of market share within Sales and Lettings and decline in profitability that overshadowed the stronger performance in other areas of the Group.
In January 2018, following a Board review of the business, the former chief executive left the Company and I was appointed executive chairman. We were in the fortunate position that within the Group we have an industry expert, Paul Creffield, who at that time was responsible for our B2B division but prior to 2015 had led our successful Sales and Lettings business in London. He was appointed group operations director and immediately began to strengthen our Sales and Lettings team both through internal promotion and external appointments, a number of whom returned to the business having left under the previous management. In August, I was delighted to announce that Paul would be promoted to group managing director and join the Board.
In August, we also announced a capital refinancing plan which resulted in us raising GBP125 million (after deduction of commissions, fees and expenses) by way of a firm placing and placing and open offer. We sought to make the fundraising as inclusive as we could for all shareholders and know that some retail investors were disappointed by the structure of the capital raising. To secure the future of the Company, however, we had no alternative but to raise the capital in the way that we did. This was a substantial fundraising and I would like to thank all shareholders, both existing and new, who have shown confidence in the Group's strategy and turnaround plan.
Financial results
I am pleased to report that in this year of reset for the Group, and against a backdrop of increasing geo-political and economic uncertainty we have delivered financial results in line with the Board's expectations. Two fundamental areas of focus have been on restoring listings and building the pipeline within our Sales and Lettings business, both of which we have achieved. In terms of the pipeline, having started the year 19% down on the previous year we ended 2018 with the pipeline flat year-on-year. Pleasingly the UK, excluding London, which accounts for 64% of this business unit's income, finished the year up 5%.
Income for the year reduced from GBP673 million to GBP627 million. Adjusted EBITDA at GBP33 million was GBP33 million lower than the prior year and includes GBP2 million of net charges, unrelated to current trading. The Group's underlying trading was GBP35 million. Loss for the year stood at GBP218 million (2017: GBP207 million) and adjusted earnings per share (EPS) was 0.6 pence versus 8.7 pence in 2017.
As stated in August, the Group does not expect to pay dividends in the medium term and there will, therefore, be no dividend for the 2018 financial year.
Three-year recovery plan
We have reset the strategy for the Group, under-pinned by a "back to basics" principle within Sales and Lettings. Our business is led by experienced industry experts and now that we have a sensible long-term capital structure in place, we are focused on our three-year turnaround. Rigorous planning by our teams gives the Board confidence that, in the normal course of business, we have a sound three-year plan which sets the Group up for long-term future success.
Our strategy, comprising five pillars, outlined below, will be covered in greater detail within the Annual Report:
- "Back to basics" in Sales and Lettings: Having lost focus on what
the Group had traditionally done well resulting in a significant
loss of market share in Sales and Lettings, the Group has taken
a range of actions to restore both market share and profitability;
- Increased sales of complementary services: This had reduced from
50p in the GBP1 at the time of flotation in 2013 to 38p in the
GBP1 in the financial year 2017. The actions taken by the Group
saw this increase to 44p at the end of the financial year and
further growth is targeted in the three-year plan;
- Cost efficiency: This will be achieved through a number of measures
including reduction in central functions, transformation of the
Group's IT estate and investment in contact centre optimisation;
- Continued growth in B2B and Financial Services: The Group has
strong positions within these markets which it will seek to expand
and enhance as part of the three-year turnaround; and
- Financial discipline and cash flow: In addition to reduced interest
costs, focus is on bringing a greater financial discipline to
budgeting and the forecasting process coupled with a more rigorous
approach to working capital management.
Board changes
At the conclusion of the Annual General Meeting in April 2018, Richard Adam stepped down from the Board. On 1 October Mark Shuttleworth joined the Board. An experienced finance leader, he has considerable restructuring and turnaround experience. On 1 January 2019, Mark took on the role of chair of the Group Audit and Risk Committee.
Colleagues
The future success of Countrywide not only lies with its sound financial structure, but also its robust and deliverable growth plan. Just as important, are the colleagues across the Group who, in very trying circumstances, not only in 2018 but also in previous years, have shown dedication and commitment to our Group.
Some very tough decisions have needed to be taken, and the results achieved would not have been possible without a fantastic team of colleagues, who will continue to play an integral part in our future success.
On behalf of the Board, I would like to personally thank our colleagues for all their efforts. I am confident that in Countrywide we have a first-class team who will help restore our growth and retain our leading position in the market place.
Outlook
We have been encouraged by the progress made in 2018 in resetting the business as part of our return to growth strategy. The principles within "back to basics" in Sales and Lettings resulted in growth in the register and the sales pipeline in the UK, coupled with an increase in market share of listings.
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 GBP3 - GBP5 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 GBP9 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.
GROUP MANAGING DIRECTOR'S STATEMENT
2018 was certainly a year of change not only for the Company but also for me personally. At the start of the year we identified that our strategy required resetting. Following management changes early in 2018, I assumed the role of group operations director, assuming responsibility for our Sales and Lettings business and spearheading our "back to basics" principle. In August I became group managing director, continuing our reset and return to profitable growth.
All this could not have been achieved without the help and dedication of our colleagues across the Group and I want to take this opportunity to thank everyone for their commitment and drive to support our turnaround.
We are clearly trading against a tough external environment that is well covered in the media, most notably coverage around house prices, transaction numbers and Brexit. All this results in uncertainty in people's minds, impacting on sentiment and causing some reticence amongst homebuyers and sellers. Against that backdrop, I am delighted that we have been able to build back our register of available stock and pipeline of fees in our UK Sales and Lettings business.
Our diversity in the property services sector benefits us and in particular I would call out an excellent performance by our Hamptons lettings business where we saw income increase by 5% year on year and units under management also up 4% year on year against a market that is decreasing in size.
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 GBP 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 GBP, 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 GBP20 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 GBP70.7 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.
SEGMENTAL RESULTS
Total income Adjusted EBITDA(1)
--------------------------------- --------------------------------------
2018 2017 2018 2017
(Restated(2) (Restated(2)
) Variance ) Variance
GBP'000 GBP'000 % GBP'000 GBP'000 %
------------------------ -------- ------------- -------- -------- ------------- --------
Sales and Lettings 329,170 361,479 (9) 1,191 27,424 (96)
Financial Services 83,912 87,324 (4) 16,613 19,660 (16)
B2B 213,328 220,656 (3) 27,931 35,487 (21)
Central Services 661 3,319 (80) (13,052) (16,984) 23
----------------------------- -------- ------------- -------- -------- ------------- --------
Total Group 627,071 672,778 (7) 32,683 65,587 (50)
----------------------------- -------- ------------- -------- -------- ------------- --------
(1) Earnings before interest, tax, depreciation, amortisation, exceptional items, employment-linked contingent consideration, share-based payments and share of profits from joint venture, referred to hereafter as 'adjusted EBITDA' (see note 4 for reconciliation)
(2) Restated from prior year following the adoption of IFRS 15 and the correction of a prior year error (see note 2)
SEGMENTAL VOLUMES
Number Number Variance
2018 2017 %
------------------------------------------- ----------- ----------- ------------
House sales exchanged
- UK 38,973 45,286 (14)
- London 4,796 5,214 (8)
- B2B 3,059 3,707 (17)
------------------------------------------- ----------- ----------- ------------
Group total 46,828 54,207 (14)
------------------------------------------- ----------- ----------- ------------
Properties under management
- UK 64,718 68,064 (5)
- London 21,697 21,313 2
- B2B 38,599 36,624 5
------------------------------------------- ----------- ----------- ------------
Group total 125,014 126,001 (1)
------------------------------------------- ----------- ----------- ------------
Mortgages arranged, number 109,379 96,030 14
Mortgages arranged, value GBP20.3bn GBP17.8bn 14
Total valuations and surveys completed 381,393 365,223 4
Conveyances completed (excluding third
party) 25,873 26,870 (4)
------------------------------------------- ----------- ----------- ------------
SALES AND LETTINGS
Summary
-- Total income down 9%; adjusted EBITDA of GBP1.2 million, down 96%
-- Properties under management 86,415, down 3%; Lettings income down
1%
-- 43,769 homes exchanged, down 13%
-- Average FTE down 2% to 5,467
At the heart of our "back to basics" principle in Sales and Lettings was to build back industry expertise to support the growth in the register of properties available for sale, to grow the pipeline of agreed sales in the UK and to improve income from complementary services. The build back of industry expertise is now largely complete with experienced MDs for the North, South and Hamptons International, and our Premier & City business; and we have a full complement of staffing and separate sales and lettings expertise at regional and branch management level. At a territory level, we have seven seasoned managing directors now in place supported by 89 regional managers.
Sales
We are encouraged by the progress we have made in "back to basics" and in the growth in the register and the pipeline in the UK. The register of properties available for sale in UK Sales and Lettings was up 9% year on year. The pipeline of agreed sales awaiting exchange of contracts in UK Sales and Lettings was up 5% having begun the year down 21%.
Our estate agency income fell by 16% year on year, principally the result the lower entry pipeline of sales agreed as we ended 2017. Our Central London brands of Hamptons International and John D Wood have outperformed the market decline, compared to the overall decline in the Central London market.
Lettings
Our lettings performance was resilient, with an overall income decline of just 1% compared with the decline of 8% in 2017. Our London lettings business grew by 1%, a good performance in a challenging market, that helped offset a 3% decline in the UK. Properties under management were 86,415, an overall decline of 3% in line with the market which has seen private landlords exit the market as a result of stamp duty land tax and other tax changes.
Income from complementary services
Our income from complementary services, comprising Financial Services and Conveyancing delivered by our branch network, has increased from 38 pence to 44p in the GBP. This is the additional income driven from this activity expressed as an amount compared to each GBP of income from sales exchanged income.
FINANCIAL SERVICES
Summary
-- Income down 4% and adjusted EBITDA of GBP16.6 million (2017: GBP19.7
million), down 16%
-- Over GBP20 billion mortgage completions, up 15% on 2017 against
a market backdrop of only 3% growth
Operating review
In 2018 the UK mortgage market grew by approximately 3% year on year, with overall gross lending finishing at GBP269 billion(1) (2017: GBP261 billion). In comparison, Countrywide mortgages completed grew 15% from GBP17.7 billion in 2017 to GBP20.3 billion in 2018.
Financial Services income was GBP83.9 million (2017: GBP87.3 million), with another year of strong double digit income growth across the combined The Buy to Let Business (TBTLB), Mortgage Bureau and Mortgage Intelligence channels offset by lower transactional volumes from estate agency sales which were impacted by a loss of fee earning consultants in the branches.
Mortgage Intelligence (MI) operates a network and club for third party Appointed Representatives (AR) and Directly Appointed (DA) mortgage brokers respectively. MI provides regulatory oversight for sales made by the network and assists both the network and the club through arranging mortgage and insurance deals with our panels of lenders and insurance providers. The network firms employ over 400 regulated individuals, all of whom are contracted to sell only the financial products arranged by MI. In 2018, MI generated GBP12.5 billion (2017: GBP10.2 billion) of gross mortgage distribution from the club and the network.
TBTLB conducts our specialist business in the buy to let sector, and now also handles customers who wish to transact by phone. The business has experienced growth from both its strong existing customer relationships and reputation in the buy to let market, as well as from new telephony referrals from our Sales and Lettings branch network and customer contact centre. As a result of the continued expansion, the business increased its gross distribution to GBP1.8 billion (2017: GBP1.5 billion), an increase of 2% year on year.
Mortgage Bureau is our specialist new build mortgage brokerage. In 2018 Mortgage Bureau has focused on building its relationship with other Group new build businesses, as well as on independent growth from its direct relationships with new build developers. As a result, the business has increased its gross distribution to GBP0.9 billion (2017: GBP0.8 billion); an increase of 16% year on year.
In April we launched a new General Insurance product with our strategic partner, AXA. Rated 5 stars by Defaqto the new product represents excellent quality and value for our customers.
[1] Source: Bank of England 2019
B2B
Summary
-- Income down 3%, adjusted EBITDA down 21% to GBP27.9 million
-- Strong year for contract retention and service delivery improvement
in Surveying
-- Successful implementation of new instruction technology in Conveyancing
leading to operational benefits
-- Excellent contract retention in Lambert Smith Hampton in a challenging
commercial market
Operating review
Income across our B2B business was down 3% with another good performance in surveying and valuations, and conveyancing offset by a slower market for new homes and a slower commercial transactional property market for our Lambert Smith Hampton business.
Surveying
Our Surveying business delivered another year of growth in both income and adjusted EBITDA and significantly improved service delivery to our lender clients. This position was strengthened in 2018 with key contract retentions including Santander, alongside key contract wins including Coventry Building Society and in the expanding market of equity release where we renewed our long-term contract with Just Retirement.
The Surveying business continues to help lead the industry with the introduction of new technologies and new valuation approaches to better assess property risk for its lender clients. Following the substantial investments in the IT technology infrastructure within our business, service levels to our client base have improved, which resulted in an improved turnaround time of our mortgage valuations by 27% to under 4.5 days, when comparing Q4 2017 and Q4 2018.
Conveyancing
The business continued to build on successes in prior years in improving customer service, and in 2018 saw another record year as measured by the customer through our Net Promoter Score (NPS) of +54 (up from +38 in 2017). In this regard the business celebrated another award winning year winning 5 awards, including the What Mortgage Award - Best Legal Services Provider, Best Conveyancing Service at the Money Facts Awards and the Best Conveyancer at the Mortgage Strategy Awards 2018.
Land & New Homes and Asset Management
Whilst our land and new home business sold over GBP1.2 billion of new homes in 2018, the rate of completions and house exchanges was impacted by the slower market for second hand homes in the UK. Pleasingly, the closing register finished 49% higher than the closing register in 2017.
Lambert Smith Hampton (LSH)
In the face of the uncertain economic and political environment, our commercial business, Lambert Smith Hampton, saw a resilient performance with overall income down 4%, with excellent contract retention in a difficult market. Consulting services were robust, down only 1%, with most consultancy divisions showing increased income.
Whilst capital markets were up 10%, assisted by the 3% year on year increase in UK investment transactions, overall transactional services were down 6% reflecting the substantial uncertainty in key sectors.
GROUP FINANCIAL REVIEW
Introduction
2018 marked a significant year for the Group. The previous four years had seen an increase in the Group's indebtedness as a result of acquisitions, dividends and share buybacks and the material decline in profitability resulting from the sharp loss of market share.
Our firm placing and placing and open offer announced on 2 August 2018 raised net proceeds of GBP125 million. Net debt at the end of the year was GBP71 million, with a net debt to adjusted EBITDA ratio of 2.2x compared with the GBP212 million of net debt we carried at 30 June 2018. The Group now has a sustainable capital structure and covenant package and we are grateful to shareholders and our lender group for their support to underpin the Group's recovery. We remain committed to reducing leverage to 1x in the medium term.
Overall Group income fell by 7% to GBP627.1 million which is a resilient performance against the backdrop of both a challenging market and the previously reported 19% opening pipeline deficit in Sales at the beginning of 2018.
The Group's adjusted EBITDA for the year ended 31 December 2018 was GBP32.7 million (2017: GBP65.6 million), and includes GBP2.2 million of net charges, not related to current trading, arising from a review of the carrying value of certain assets and liabilities.
The Group's underlying trading (excluding GBP2.2 million of net charges unrelated to current trading) was in line with the Board's expectations at GBP34.9 million.
Our statutory results were further impacted by restructuring and significant impairment charges relating to historical acquisitions, resulting in a loss for the year of GBP218.2 million.
The Group incurred net exceptional charges of GBP245.4 million comprising principally non-cash impairment charges of GBP218.0 million, with further movements for: strategic and restructuring costs of GBP12.8 million; onerous lease provisions of GBP6.1 million; GBP5.2 million restitution of trust funds ; and financing costs of GBP6.5 million, offset by GBP3.2 million of exceptional income in relation to professional indemnity (see note 10).
Finance costs, before exceptional items, have decreased by GBP4.2 million during the year as a result of reduction in our borrowings following the proceeds from the capital refinancing plan in August 2018. Net debt has reduced during the year by GBP125.8 million to GBP70.7 million, with net debt to adjusted EBITDA ratio of 2.2x.
Prior year retained earnings have been restated for the impact of the following: GBP(0.9) million credit in respect of the adoption of IFRS 15 'Revenue from contracts with customers' (see note 2(c)); and GBP3.6 million debit in respect of the correction of a prior year error in respect of the restitution of trust funds following legal advice received during preparation of results for the first half of the year (see note 2(d)).
In respect of the trust funds, having received further legal advice in the second half of 2018, the Group now understands that all, rather than some, of the historical and untraceable funds arising from the Lettings business for the period from 2008-2017 should be held in trust under a separate client account. As a result, the Group has transferred an additional GBP5,185,000 into a separate client account in December 2018 in full restitution of these client funds. This further advice during the latter part of 2018 has caused a change in the accounting estimate taken at 30 June 2018 and, given the magnitude of the increase in charge, this has been treated as an exceptional cost.
Summary of results
2018 results were principally influenced by the previously announced opening pipeline deficit of 19% which resulted in our income in the Sales and Lettings business for the full year down 9% and adjusted EBITDA declining 96% to GBP1.2 million (2017: GBP27.4m). The Group saw an improved second half performance and finished the year with a growth in the register of properties available for sale and stronger pipeline in our UK Sales and Lettings business.
Income in our B2B businesses was GBP213.3 million, down 3% and adjusted EBITDA down 21% to GBP27.9 million, with another year of good performance in our surveying and valuations business and in conveyancing. The decline in profitability reflected in part non-current trading items of GBP1.1 million (from the net charges of GBP2.2 million noted above) relating to impairment of receivables and the effect of slower market for new homes and a slower commercial transactional property market in particular in the second half. Our land and new homes business finished the year with a register that was up 49% year on year and a stronger pipeline of properties sold subject to contract.
Financial Services income was GBP83.9 million, down 4%, and adjusted EBITDA of GBP16.6 million, down 16% with another year of strong double digit income growth across the combined The Buy to Let Business, Mortgage Bureau and Mortgage Intelligence channels offset by lower transactional volumes from estate agency sales.
Within Group, we took the difficult decision to right size the head office functions and to unwind the centralisation that had been introduced since 2015; which provided the opportunity to reinvest some GBP6 million in the front line.
Income statement
Reconciliation of statutory operating profit and adjusted EBITDA (see note 4)
Sales Financial All other 2018 2017(2)
and Lettings Services B2B segments Total Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ------------- --------- -------- --------- --------- ---------
Adjusted EBITDA (1) 1,191 16,613 27,931 (13,052) 32,683 65,587
Contingent consideration 57 (1,830) (409) (3,907) (6,089) (3,929)
Share-based payments (691) (225) (569) (211) (1,696) (1,623)
Depreciation and amortisation (7,448) (2,493) (7,586) (4,935) (22,462) (33,490)
Share of profit from
joint venture - - - (1,518) (1,518) 690
Exceptional income - - 2,663 504 3,167 -
Exceptional costs (216,315) (3,131) (1,890) (20,701) (242,037) (225,869)
------------------------------- ------------- --------- -------- --------- --------- ---------
Operating (loss)/profit (223,206) 8,934 20,140 (43,820) (237,952) (198,634)
------------------------------- ------------- --------- -------- --------- --------- ---------
1 Earnings before interest, tax, depreciation, amortisation, exceptional items, employment-linked contingent consideration, share-based payments and share of profits from joint venture, referred to hereafter as 'adjusted EBITDA' (see note 4 for reconciliation)
2 Restated from prior year following the adoption of IFRS 15 and the correction of a prior year error (see note 2)
Contingent consideration
Contingent consideration of GBP6.1 million (2017: GBP3.9 million) relates to previous acquisitions where the consideration arrangements require the vendors to remain in employment and as such have been treated as a post-combination employment expense; they are being accrued over the relevant periods specific to each of the agreements, with commitments extending out to 2021.
Certain elements of this contingent consideration are also subject to performance conditions being satisfied, with target adjusted EBITDA levels which must be achieved in order to realise the full payment, with a reduced payment made if targets are not fully met. Accruals for contingent consideration are therefore reviewed each period as future earn-out assumptions are revisited and any credits to the income statement in respect of downward revisions to estimates are reported in the same way.
Share-based payments
The share-based payment charge to the income statement of GBP1.9 million (2017: GBP1.8 million) before National Insurance credit of GBP0.2 million (2017: GBP0.2 million) comprises: a decreased charge in respect of annual nil-cost option grants under the three year long term incentive plan (LTIP) to senior managers amounting to GBP0.2 million (2017: GBP0.8 million) as a result of aligning non-market conditions to underlying performance across grants; share incentive plan (SIP) charges of GBP0.9 million (2017: GBP0.9 million) arising from employee participation and new SAYE charges of GBP0.5 million incurred following implementation of the scheme from May 2018 after cessation of the SIP scheme; and deferred bonus share plan charges of GBP0.3 million (2017: GBP0.1 million).
The Group has seen a significant decline in profitability since 2014 and therefore the impact of truing up for non-market conditions, matching reward to performance, has seen the share-based payment charge reduce accordingly since 2014, becoming a less material feature of the income statement after the vesting of all elements of the IPO scheme in March 2016. However, as the Group is now in a turnaround situation, it is anticipated that the incentivisation of performance will result in future LTIP awards which, provided Group performance meets these targets, will see the share-based payment charge continue to increase and could reintroduce material volatility into the income statement.
Depreciation and amortisation
Our depreciation and amortisation charge continues to be separated to indicate the depreciation and amortisation that relates to assets purchased for use in the business and amortisation arising on those intangible assets that have been recognised as a result of business combinations. The underlying depreciation and amortisation charge decreased by GBP10.2 million to GBP17.5 million. This was principally due to the impairments in 2017 and June 2018 decreasing the value of assets giving rise to a charge. The depreciation charge was GBP10.2 million (2017: GBP17.2 million).
Amortisation of acquired intangibles has decreased to GBP4.9 million (2017: GBP5.8 million) following impairments in 2017 and in June 2018. As previously signposted, following the impairments in 2017 and H1 2018, we reviewed the useful economic lives of our brands and from 1 July 2018 adopted finite lives of fifteen years in respect of all of our brand names.
Exceptional income
During H1 2018 the Group received exceptional income of GBP3.2 million (2017: GBPnil) from a professional indemnity claim settled in the Group's favour of GBP2.1 million; and a professional indemnity provision release of GBP1.1 million following reassessment of our claims position.
Exceptional costs
Significant operational progress has been made with the strategy and turnaround plan during the year. However, the continued subdued external environment and the effects of the weaker opening pipeline which became apparent after conclusion of the 2018 business planning process, have resulted in further impairment charges. Cash flows driving the current impairment review align to the latest three year strategy and turnaround plan that has been endorsed by the Board.
Exceptional costs incurred in the year amounted to GBP248.5 million (2017: GBP225.9 million) and comprise items that have resulted in cash charges of GBP21.1 million and GBP227.4 million of non-cash charges as follows:
-- Impairment charges of GBP218.0 million in respect of goodwill,
brand names and customer contracts, further intangible (computer
software) and tangible fixed assets and investments into the
property technology sector;
-- Strategic and restructuring costs comprising of people-related
restructuring costs of GBP4.2 million incurred principally as
a result of our review and rationalisation of group wide central
functions; associated restructuring and cost optimisation consultancy
costs of GBP7.1 million and GBP1.5 million of property closure
costs in respect of a head office in London that closed during
Q4 2018;
-- Onerous lease provisions with a present value of GBP6.1 million
have been recognised in relation to economic outflows arising
from onerous contracts in relation to loss making branches, unwinding
over a period to 2026;
-- GBP5.2 million incurred in restitution of trust funds in full
during H2 2018; and
-- Financing costs of GBP6.5 million, which comprise a GBP2.2 million
write-off of previously capitalised banking fees and GBP4.3 million
in relation to professional fees incurred during the refinancing
of the balance sheet (excluding transaction fees offset directly
against share premium).
Professional indemnity provisions
During 2018 the Group received reduced numbers of professional indemnity valuation claims, in line with expectations, and achieved closure of challenging cases. Estimating the liability for PI claims is highly judgemental and we updated our financial models to reflect the latest inputs and trends and took advice from our panel of lawyers in respect of open claims. The progress made during the year on some individually significant claims, aligned with the low level of claims made, resulted in some unwinding of the provision.
Interest
Our drawdown on bank borrowing facilities decreased from GBP210 million at the prior year end to GBP85 million at 31 December 2018, principally as a result of the payment of net proceeds of GBP125 million arising from our equity raise on 30 August 2018 being applied to the revolving credit facility.
Taxation
A tax charge of GBP1.0 million (2017: GBP5.9 million) was recognised on underlying profits of GBP5.4 million (2017: GBP26.1 million) which represents an effective tax rate of 17.5 % (2017: 22.5%). The Group also recognised an exceptional tax credit of GBP35.5 million (2017: GBP9.7 million) on losses before tax of GBP258.1 million (2017: GBP237.2 million) which results in an overall tax credit for the year of GBP34.5 million (2017: GBP3.8 million). This represents an effective tax credit rate of 13.7% (2017: 1.8%).
The principal reason for the tax credit is the GBP214.3 million impairment of intangible and tangible assets which resulted in unwind of the related deferred tax liability.
Countrywide's business activities operate predominantly in the UK. All businesses are UK tax registered apart from a small operation in Ireland. We act to ensure that we have a collaborative and professional relationship with HMRC and continue to receive a low risk rating. We conduct our tax compliance with a generally low risk approach whilst endeavouring to maintain shareholder value and optimise tax liabilities. Tax planning is done with full disclosure to HMRC when necessary and being mindful of reputational risk to the Group. Transactions will not be undertaken unless they have a business purpose or commercial rationale.
In addition to our corporation tax contribution, our businesses generate considerable tax revenue for the Government in the UK. For the year ended 31 December 2018, we will pay corporation tax of GBPnil (2017: GBP1.4 million) on profits for the year; we collected employment taxes of GBP129.2 million (2017: GBP128.7 million) and VAT of GBP80.5million (2017: GBP87.7 million), of which the Group has incurred GBP38.8 million and GBP2.8 million (2017: GBP36.4 million and GBP3.0 million) respectively. Additionally we have paid GBP11.4 million (2017: GBP11.8 million) in business rates and collected GBP33.7million (2017: GBP38.7 million) of stamp duty land tax though our conveyancing business.
The total tax contribution of the Group was GBP296.4 million (2017: GBP307.7 million), which includes both taxes borne of GBP53.0 million (2017: GBP52.6 million) and taxes collected totalling GBP243.4 million (2017: GBP255.1 million).
Profit for the year - underlying and statutory
The Group reported underlying profit attributable to equity holders ("underlying earnings") of GBP4.5 million (2017: GBP20.2 million), a decrease of 78% for the year ended 31 December 2018. The Group's statutory loss after tax of GBP218.2 million (2017: loss of GBP207.3 million) is after net exceptional costs of GBP245.4 million (2017: GBP225.9 million), contingent consideration charges of GBP6.1 million (2017: GBP3.9 million), share-based payment charges, after National Insurance credit, of GBP1.7 million (2017: GBP1.6 million) and non-cash charges of GBP4.9 million for amortisation of acquisition-related intangible assets (2017: GBP5.8 million) related to historical acquisitions, together with the corresponding tax effect.
Earnings per share
Adjusted earnings per share declined to 0.6 pence (2017: 8.7 pence). Statutory basic earnings per share declined to a loss of 30.8 pence (2017: 89.3 pence). These are based on the weighted average number of shares in issue of 707.6 million (2017: 232.3 million), following the issue of 1.4 billion shares on 30 August 2018. A reconciliation of the basic and underlying earnings per share is provided in note 13.
Cash flow
In the statutory cash flow, cash generated from operations decreased by GBP60.9 million to an outflow of GBP2.8 million for the year (2017: inflow of GBP58.1 million), principally driven by a reduction in adjusted EBITDA of GBP32.9 million. This was exacerbated by the unwind, during the first half of the year, of cyclical cash management practices previously undertaken, which involved the delay in supplier payments at 31 December 2017 until after the year end, amounting to GBP17.9 million.
The non-GAAP cash flow represented shows operating cash flow conversion of 69% (2017: 104%) of adjusted EBITDA, which when corrected for these cyclical cash management practices would deliver an operating cash flow conversion rate of 124% (2017: 77%). Continued focus has been brought to bear on working capital management, delivering reductions in the debtors days within our commercial business unit.
Capital expenditure has been focused primarily on computer software. During the first half of the year, the Group disposed of its interest in unlisted residential property fund units for proceeds of GBP15.8 million. Exceptional cash flows of GBP14.0 million mainly comprise: GBP4.2 million of redundancy costs; GBP6.7 million of transformation project consultancy charges and GBP5.0 million of payments for the restitution of trust funds offset by GBP2.1 million of professional indemnity claim settlement receipts.
The GBP140 million proceeds arising from the firm placing and placing and open offer, net of the transactional costs of GBP14.9 million, were used to reduce the balance on the revolving credit facility and reduce leverage.
2017
2018 Restated(1)
GBPm GBPm
--------------------------------------- -------- -------------
Adjusted EBITDA 32.7 65.6
Changes in working capital:
Decrease in trade & other receivables 14.9 18.4
Decrease in trade & other payables (23.1) (12.5)
Decrease in provisions (2.0) (3.0)
---------------------------------------- -------- -------------
Changes in working capital (10.2) 2.9
---------------------------------------- -------- -------------
Operating cash flow (OCF) 22.5 68.5
---------------------------------------- -------- -------------
OCF conversion rate 68.8% 104.4%
Use of Funds
Capital expenditure (9.3) (14.5)
Repayment of finance leases (2.1) (3.7)
Net interest expense (7.5) (9.8)
Tax 2.0 (3.0)
Pension (2.0) (2.0)
---------------------------------------- -------- -------------
Cash from operations 3.6 35.5
---------------------------------------- -------- -------------
Deferred & contingent consideration
from historic acquisitions (7.9) (7.3)
Purchase of investments (1.5) -
Proceeds from disposals 16.0 0.7
Purchase of own shares (0.5) (1.4)
Financing fees paid (0.9) (0.7)
Exceptional items (14.0) (6.4)
---------------------------------------- -------- -------------
Total cash flow before capital
refinancing (5.2) 20.4
---------------------------------------- -------- -------------
Capital refinancing 140.0 36.8
Cost of refinancing (14.9) -
--------------------------------------- -------- -------------
Net capital raise 125.1 36.8
---------------------------------------- -------- -------------
RCF repaid (125.0) (80.0)
---------------------------------------- -------- -------------
Net decrease in cash and cash
equivalents (5.1) (22.8)
---------------------------------------- -------- -------------
Opening cash 22.5 45.3
---------------------------------------- -------- -------------
Closing cash 17.4 22.5
---------------------------------------- -------- -------------
1 Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2)
Net debt
At 31 December 2018, the Group had net debt (including finance lease liabilities) of GBP70.7 million (31 December 2017: GBP196.4 million as restated following net debt amendments in respect of the correction of a prior year error - see note 20) with a net debt to adjusted EBITDA ratio of 2.2x (31 December 2017: 3.0x as restated).
Net debt reflects a decrease of GBP125.8 million principally due to the net proceeds received in respect of the firm placing and placing and open offer undertaken on 30 August 2018 (see note 26).
The Board has previously acknowledged the need to bring the leverage ratio down to the Group's medium term target of below 1x. The net debt reconciliation is provided in note 20.
Net debt maturity and changes to committed bank facilities
In August 2018 the Company agreed an amendment, extension and restatement agreement relating to its term and revolving credit facility with its lender partners which provides the Company with the financial flexibility to invest in the business as it takes action to restore the Sales and Lettings business back to profitable growth. The Group reduced its borrowing facility to a GBP125 million RCF repayable in September 2022.
Going concern
The Board's assessment in relation to going concern is included in note 2 to the financial information.
The directors have confirmed that, after due consideration, they have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
Dividend
Given the scale of challenge required to turn around the Sales and Lettings business and the desire to invest in cost and growth initiatives to build a sustainable and profitable business for the long term, whilst remaining committed to reducing our leverage, the Board has decided that there will be a nil dividend recommendation for 2018 (2017: nil pence).
In assessing any future dividends, the Board will consider: the future investment needs of the business; and maintaining appropriate levels of gearing.
Other information
Tenant fees
The draft Tenant Fees Bill in November 2017 sets out the government's approach to banning lettings fees paid by tenants. This will take effect from 1 June 2019. We estimate that, after mitigation, this will have GBP9 million impact on adjusted EBITDA in 2019. The Group has an extensive programme of activity to ensure that we are fully compliant with the new legislation as well as plans to mitigate the effect of the ban.
Pensions
As at 31 December 2018 the net defined benefit scheme liabilities were GBP4.6 million (2017: GBP5.6 million). The reduction in the scheme liabilities of GBP2.8 million exceeded the reduction in the value of the scheme assets.
Pension contributions of GBP2.0 million (2017: GBP2.0 million) were made in the year, in line with the payment profile agreed with the trustees in 2016 and which remains in place for another two years.
Tax strategy
The Group's Board approved strategy in relation to tax is published on our investor relations website in line with HMRC guidelines.
PRINCIPAL RISKS AND UNCERTAINTIES
There are a number of risks and uncertainties facing the business in the forthcoming financial year. The Board has reconsidered the risks and uncertainties listed below:
-- Financing and capital structure
-- Exposure to UK housing market trends
-- Professional indemnity exposure
-- Potential loss of a major business partner or outsourcing partner
-- Resilience of IT infrastructure and cyber risk
-- Changing regulatory environment
-- Increasing competition in the evolving markets that we operate
in
-- Securing and retaining excellent people
These risks and uncertainties and mitigating factors are described in more detail on pages 14 to 16 of the Countrywide plc financial statements for the year ended 31 December 2017 (a copy of which is available on the Group's website).
Having reconsidered these, the Board considers that they remain the principal risk areas facing the Group. In 2017 we had identified 'Financing and capital structure' as a new principal risk but the Board consider this risk to have been significantly reduced by the August 2018 capital refinancing.
The result of the EU referendum has increased the overall level of macroeconomic uncertainty, which could have an effect on property prices, mortgage approvals and volume of transactions as outlined under 'market risk'.
APPROVAL
This report was approved by the board of directors on 7 March 2019 and signed on its behalf by:
Peter Long
Executive chairman
7 March 2019
Consolidated income statement
For the year ended 31 December 2018
2018 2017 (Restated) (2)
------------------------------------------- ---------------------------------------------
Pre-exceptional Exceptional Pre-exceptional Exceptional
items, items, items, items,
amortisation, amortisation, amortisation, amortisation,
contingent contingent contingent contingent
consideration consideration consideration consideration
and share-based and share-based and share-based and share-based
payments payments Total payments payments Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ------ --------------- --------------- --------- ---------------- ---------------- ---------
Revenue 619,119 - 619,119 662,188 - 662,188
Other income 5 7,952 - 7,952 10,590 - 10,590
---------------- ------ --------------- --------------- --------- ---------------- ---------------- ---------
4 627,071 - 627,071 672,778 - 672,778
Employee benefit
costs 6 (382,477) (7,785) (390,262) (384,142) (5,552) (389,694)
Other operating
costs 7 (211,911) - (211,911) (223,049) - (223,049)
---------------- ------ --------------- --------------- --------- ---------------- ---------------- ---------
Adjusted
EBITDA(1) 4 32,683 65,587
---------------- ------ --------------- --------------- --------- ---------------- ---------------- ---------
Depreciation and
amortisation 14, 15 (17,516) (4,946) (22,462) (27,683) (5,807) (33,490)
Share of
(loss)/profit
from joint
venture 16(b) (1,518) - (1,518) 690 - 690
---------------- ------ --------------- --------------- --------- ---------------- ---------------- ---------
Group operating
profit/(loss)
before
exceptional
items 13,649 (12,731) 918 38,594 (11,359) 27,235
---------------- ------ --------------- --------------- --------- ---------------- ---------------- ---------
Employee benefit
costs - (4,234) (4,234) - (4,405) (4,405)
Other operating
costs - (16,595) (16,595) - (6,978) (6,978)
Impairment of
non-current
assets - (218,041) (218,041) - (214,486) (214,486)
---------------- ------ --------------- --------------- --------- ---------------- ---------------- ---------
Exceptional
Items (net): 10 - (238,870) (238,870) - (225,869) (225,869)
---------------- ------ --------------- --------------- --------- ---------------- ---------------- ---------
Operating
profit/(loss) 4 13,649 (251,601) (237,952) 38,594 (237,228) (198,634)
---------------- ------ --------------- --------------- --------- ---------------- ---------------- ---------
Finance costs 8, 10 (8,432) (6,489) (14,921) (12,607) - (12,607)
Finance income 9 200 - 200 82 - 82
---------------- ------ --------------- --------------- --------- ---------------- ---------------- ---------
Net finance
costs (8,232) (6,489) (14,721) (12,525) - (12,525)
---------------- ------ --------------- --------------- --------- ---------------- ---------------- ---------
Profit/(loss)
before
taxation 5,417 (258,090) (252,673) 26,069 (237,228) (211,159)
Taxation
(charge)/credit 11 (950) 35,468 34,518 (5,863) 9,679 3,816
---------------- ------ --------------- --------------- --------- ---------------- ---------------- ---------
Profit/(loss)
for the
year 4,467 (222,622) (218,155) 20,206 (227,549) (207,343)
---------------- ------ --------------- --------------- --------- ---------------- ---------------- ---------
Loss per share
attributable
to owners of the
parent
Basic and
diluted loss
per share 13 (30.83)p (89.25)p
---------------- ------ --------------- --------------- --------- ---------------- ---------------- ---------
1 Adjusted EBITDA is a non-GAAP measure of earnings before interest, tax, depreciation, amortisation, exceptional items, contingent consideration, share-based payments and share of profits/(losses) from joint venture
2 Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2)
Consolidated statement of comprehensive income
For the year ended 31 December 2018
2017
2018 (Restated)(1)
Note GBP'000 GBP'000
------------------------------------------------------- ------ --------- --------------
Loss for the year (218,155) (207,343)
------------------------------------------------------- ------ --------- --------------
Other comprehensive (expense)/income
Items that will not be reclassified to profit or
loss
Actuarial loss arising in the pension scheme (168) (3,633)
Deferred tax arising on the pension scheme 32 690
------------------------------------------------------- ------ --------- --------------
(136) (2,943)
------------------------------------------------------- ------ --------- --------------
Items that may be subsequently reclassified to
profit or loss
Foreign exchange rate gain/(loss) 10 (30)
Cash flow hedge gain/(loss):
- Gains arising during the year - 2,030
- Less reclassification adjustments for gains included
in the profit and loss 21 337 -
Deferred tax arising on cash flow hedge (63) (410)
Available-for-sale financial assets:
- Gains arising during the year 16(c) - 1,627
284 3,217
------------------------------------------------------- ------ --------- --------------
Other comprehensive income for the year 148 274
------------------------------------------------------- ------ --------- --------------
Total comprehensive expense for the year (218,007) (207,069)
------------------------------------------------------- ------ --------- --------------
1 Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2)
Consolidated statement of changes in equity
For the year ended 31 December 2018
Retained
Share Share Other (losses)/
capital premium reserves earnings Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Audited balance at 1 January 2017
as originally presented 2,197 211,838 (17,941) 283,454 479,548
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Change in accounting policy and
correction of prior year error 2 - - - (3,436) (3,436)
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Restated total equity at the beginning
of the financial year (1) 2,197 211,838 (17,941) 280,018 476,112
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Loss for the year (restated)(1) - - - (207,343) (207,343)
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Other comprehensive income/(expense)
Currency translation differences - - (30) - (30)
Movement in fair value of available-for-sale
financial assets 16(c) - - 1,627 - 1,627
Cash flow hedge: fair value gain - - 2,030 - 2,030
Cash flow hedge: deferred tax
on gain - - (410) - (410)
Actuarial loss on the pension
fund 25 - - - (3,633) (3,633)
Deferred tax movement relating
to pension 25 - - - 690 690
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Total other comprehensive income/(expense) - - 3,217 (2,943) 274
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Total comprehensive income/(expense) - - 3,217 (210,286) (207,069)
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Transactions with owners
Issue of share capital 216 - 36,634 - 36,850
Transfer of reserves 28 - - (36,634) 36,634 -
Share-based payment transactions 27 - - - 1,944 1,944
Deferred tax on share-based payments - - - (10) (10)
Purchase of treasury shares 28 - - (1,397) - (1,397)
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Transactions with owners 216 - (1,397) 38,568 37,387
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Audited balance at 31 December
2017 as originally presented 2,413 211,838 (16,121) 111,007 309,137
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Restated total equity at 31 December
2017 (1) 2,413 211,838 (16,121) 108,300 306,430
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Change in accounting policy 2 - - (1,967) 993 (974)
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Restated total equity at 1 January
2018 (2) 2,413 211,838 (18,088) 109,293 305,456
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Loss for the year - - - (218,155) (218,155)
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Other comprehensive income/(expense)
Currency translation differences - - 10 - 10
Cash flow hedge: fair value on
termination 21 - - 337 - 337
Cash flow hedge: deferred tax
on termination - - (63) - (63)
Actuarial loss on the pension
fund 25 - - - (168) (168)
Deferred tax movement relating
to pension 25 - - - 32 32
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Total other comprehensive income/(expense) - - 284 (136) 148
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Total comprehensive income/(expense) - - 284 (218,291) (218,007)
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Transactions with owners
Issue of share capital 26 14,000 126,000 - - 140,000
Transactional costs of shares
issued 26 - (8,481) - - (8,481)
Share-based payment transactions 27 - - - 1,888 1,888
Deferred tax on share-based payments - - - (90) (90)
Purchase of treasury shares 28 - - (499) - (499)
Utilisation of treasury shares
for DSBP options 28 - - 49 (49) -
Transactions with owners 14,000 117,519 (450) 1,749 132,818
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
Balance at 31 December 2018 16,413 329,357 (18,254) (107,249) 220,267
--------------------------------------------- ----- -------- -------- --------- ---------- ---------
1 Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2)
2 Restated from prior year following the adoption of IFRS 9 and IFRS 15 and correction of a prior year error (see note 2)
Consolidated balance sheet
As at 31 December 2018
1 January
2017 2017
2018 (Restated)(1) (Restated)(1)
Note GBP'000 GBP'000 GBP'000
--------------------------------------- ------ --------- -------------- --------------
Assets
Non-current assets
Goodwill 14(a) 233,820 279,496 471,749
Other intangible assets 14(b) 74,191 220,658 250,310
Property, plant and equipment 15 7,403 41,798 49,445
Investments accounted for using the
equity method:
Investments in joint venture 16(b) 1,464 2,982 2,292
Available-for-sale financial assets 16(c) - 17,085 16,058
Financial assets at fair value through
profit or loss 16(d) 153 - -
Deferred tax assets 24 18,389 10,751 10,262
--------------------------------------- ------ --------- -------------- --------------
Total non-current assets 335,420 572,770 800,116
--------------------------------------- ------ --------- -------------- -------------- Current assets Trade and other receivables 17 88,817 105,782 122,127 Cash and cash equivalents 18 17,426 22,533 45,326 --------------------------------------- ------ --------- -------------- -------------- Total current assets 106,243 128,315 167,453 --------------------------------------- ------ --------- -------------- -------------- Total assets 441,663 701,085 967,569 --------------------------------------- ------ --------- -------------- -------------- Equity and liabilities Share capital 26 16,413 2,413 2,197 Share premium 26 329,357 211,838 211,838 Other reserves 28 (18,254) (16,121) (17,941) Retained (losses)/earnings (107,249) 108,300 280,018 --------------------------------------- ------ --------- -------------- -------------- Total equity 220,267 306,430 476,112 --------------------------------------- ------ --------- -------------- -------------- Liabilities Non-current liabilities Borrowings 20 84,432 213,489 292,505 Derivative financial instruments 21 - 337 2,367 Net defined benefit scheme liabilities 25 4,634 5,626 3,663 Provisions 23 10,916 11,985 12,503 Deferred income 22 239 663 2,563 Trade and other payables 19 9,931 8,295 13,659 Deferred tax liability 24 7,756 33,522 38,694 --------------------------------------- ------ --------- -------------- -------------- Total non-current liabilities 117,908 273,917 365,954 --------------------------------------- ------ --------- -------------- -------------- Current liabilities Borrowings 20 3,663 1,011 721 Trade and other payables 19 81,146 99,720 99,774 Deferred income 22 2,143 2,554 5,056 Provisions 23 16,536 17,453 19,952 --------------------------------------- ------ --------- -------------- -------------- Total current liabilities 103,488 120,738 125,503 --------------------------------------- ------ --------- -------------- -------------- Total liabilities 221,396 394,655 491,457 --------------------------------------- ------ --------- -------------- -------------- Total equity and liabilities 441,663 701,085 967,569 --------------------------------------- ------ --------- -------------- --------------
1 Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2)
Consolidated cash flow statement
For the year ended 31 December 2018
2017
2018 (Restated)(1)
Note GBP'000 GBP'000
------------------------------------------------------- ------------ --------- --------------
Cash flows from operating activities
Loss before taxation (252,673) (211,159)
Adjustments for:
Depreciation 15 10,162 17,180
Amortisation of intangible assets 14 12,300 16,310
Share-based payments 27 1,888 1,944
Impairment of intangible assets 14(a), 14(b) 186,494 213,071
Impairment of tangible assets 15 27,826 850
Impairment of available-for-sale financial
assets 16(c) - 565
Impairment of financial assets at fair value
through profit or loss 16(d) 2,379 -
Profit on disposal of fixed assets (9) (22)
Loss/(profit) from joint venture 16(b) 1,518 (690)
Finance costs 8 14,921 12,607
Finance income 9 (200) (82)
------------------------------------------------------- ------------ --------- --------------
4,606 50,574
Changes in working capital (excluding effects
of acquisitions and disposals of Group undertakings):
Decrease in trade and other receivables 14,865 18,367
Decrease in trade and other payables(3) (20,271) (7,802)
Decrease in provisions (1,986) (3,017)
------------------------------------------------------- ------------ --------- --------------
Net cash (used in)/generated from operating
activities(2) (2,786) 58,122
Pension paid (2,000) (2,000)
Interest paid (7,702) (9,834)
Income tax received/(paid) 2,037 (2,980)
------------------------------------------------------- ------------ --------- --------------
Net cash (outflow)/inflow from operating
activities (10,451) 43,308
------------------------------------------------------- ------------ --------- --------------
Cash flows from investing activities
Acquisitions net of cash acquired (160) -
Deferred consideration paid in relation
to prior year acquisitions (997) (3,354)
Purchase of property, plant and equipment 15 (3,400) (6,940)
Purchase of intangible assets 14(b) (5,930) (7,577)
Proceeds from sale of property, plant and
equipment 46 657
Purchase of investments 16(d) (1,300) -
Proceeds from disposal of financial assets
at fair value through profit or loss 16(d) 15,980 -
Interest received 200 82
------------------------------------------------------- ------------ --------- --------------
Net cash inflow/(outflow) from investing
activities 4,439 (17,132)
------------------------------------------------------- ------------ --------- --------------
Cash flows from financing activities
Proceeds from issue of shares 26 140,000 36,850
Transactional costs of shares issued 26 (8,481) -
Purchase of own shares 28 (499) (1,397)
Term and revolving facility loan repaid 20 (125,000) (80,000)
Financing fees paid 20 (3,028) (724)
Capital repayment of finance lease liabilities 20 (2,087) (3,698)
Net cash inflow/(outflow) from financing
activities 905 (48,969)
------------------------------------------------------- ------------ --------- --------------
Net decrease in cash and cash equivalents (5,107) (22,793)
Cash and cash equivalents at 1 January 22,533 45,326
------------------------------------------------------- ------------ --------- --------------
Cash and cash equivalents at 31 December 18 17,426 22,533
------------------------------------------------------- ------------ --------- --------------
1 Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2)
2 Net cash generated from operating activities includes GBP18,392,000 (2017: GBP6,060,000) of net cash expended on exceptional items. Cash flows from financing activities
include GBP647,000 (2017: GBPNil) of net cash expended on exceptional items, as discussed in note 10
3 Includes GBP10,094,000 of cash payments in respect of the restitution of trust funds (see notes 2 and 10)
Notes to the financial statements
1. General information
Countrywide plc ('the Company'), and its subsidiaries (together, 'the Group'), is the leading integrated, full service residential estate agency and property services group in the UK, measured by both revenue and transaction volumes in 2018. It offers estate agency and lettings services, together with a range of complementary services, and has a significant presence in key areas and property types which are promoted through locally respected brands.
The Company is a public limited company, which is listed on the London Stock Exchange and incorporated and domiciled in the UK (registered number: 08340090). The address of its registered office is Greenwood House, 1st Floor, 91-99 New London Road, Chelmsford, Essex CM2 0PP.
2. Accounting policies
The preliminary announcement does not constitute full financial statements.
The results for the year ended 31 December 2018 included in this preliminary announcement are extracted from the audited financial statements for the year ended 31 December 2018 which were approved by the directors on 7 March 2019. The auditor's report on those financial statements was unqualified. It did not include a statement under S498(2) or 498(3) of the Companies Act 2006.
The 2018 annual report is expected to be posted to shareholders and included within the investor relations section of our website on 22 March 2019 and will be considered at the Annual General Meeting to be held on 30 April 2019.The financial statements for the year ended 31 December 2018 have not yet been delivered to the Registrar of Companies.
(a) Going concern
These financial statements have been prepared on a going concern basis, which assumes that the Group will be able to meet its liabilities when they fall due.
In assessing the Group's ability to continue as a going concern, the Board has reviewed the Group's cash flow and profit forecasts which have been stress tested with various assumptions regarding future housing market volumes. The Group's performance is dependent on a number of market and macroeconomic factors including the impact on customer confidence and transactional volumes in the UK housing market from interest rate changes and government policies which are inherently difficult to predict. Specifically, a range of assumptions underpin the profit and cash flow forecasts for the period to 31 December 2020, including: the continued build back of the Group's register of properties available for sale and the pipeline; mitigation of the potential impact of new government legislation banning lettings tenancy fees; and successful realisation of internal corporate cost saving initiatives currently underway.
The directors have confirmed that, after due consideration, they have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
(b) Accounting policies
In preparing this preliminary announcement the same accounting policies, methods of computation and presentation have been applied as those set out by Countrywide plc annual financial statements for the year ended 31 December 2017. The accounting policies drawn up in accordance with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) as endorsed by the European Union.
The accounting policies adopted in the preparation of this preliminary announcement are consistent with those of the previous financial year, except for those referenced in 2(c) below.
The preparation of the consolidated financial information in conformity with IFRS requires the use of certain critical accounting estimates and requires management to exercise judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement to complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 3.
(c) New standards, amendments and interpretations
Standards, amendments and interpretations effective and adopted by the Group
The following new standards effective for the first time for the financial year beginning on or after 1 January 2018 have had a material impact on the Group.
IFRS 9 'Financial instruments'
IFRS 9 'Financial instruments' addresses the classification, measurement and recognition of financial assets and financial liabilities.
Classification and measurement
The Group has applied the requirements of IFRS 9 to instruments owned at 1 January 2018 and has not applied the requirements to instruments that had already been derecognised prior to 1 January 2018. Comparative amounts have not been restated.
As at the date of initial application of IFRS 9, the Group has elected to apply the fair value through profit or loss option for all of its non-controlling equity interests that were classified as available-for-sale under IAS 39. There is no impact on the classification and measurement of the other financial assets, and no change in the accounting for financial liabilities, held by the Group.
On transition, GBP1,967,000 of gains previously recorded within 'Other reserves' in relation to the Group's holding in the investment property fund have been reclassified to retained earnings. The asset was subsequently disposed of during the year.
Impairment
The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39. Under the impairment approach under IFRS 9, it is not necessary for a credit event to have occurred before credit losses are recognised. Instead, an entity always accounts for expected credit losses and changes in those expected credit losses, which will be updated at each reporting date.
As at 1 January 2018, the Group reviewed and assessed existing financial assets, amounts due from customers, for impairment using reasonable and supportable information that is available without undue cost or effort in accordance with the requirements of IFRS 9 to determine the credit risk. An additional credit allowance of GBP1,202,000 has been recognised against retained earnings net of its related deferred tax impact, at GBP974,000 (see note 2(d)).
Provision
against
trade
and other
receivables
GBP000
------------------------------------------------------ ------------
At 31 December 2017 calculated under IAS 39 (4,211)
Amounts restated through retained earnings (1,202)
------------------------------------------------------- ------------
Opening loss allowance at 1 January 2018 under IFRS 9 (5,413)
------------------------------------------------------- ------------
The additional loss allowance recognised upon the initial application of IFRS 9 as disclosed above resulted entirely from a change in the measurement attribute of the loss allowance relating to the financial assets.
In determining the expected credit losses for these assets, the Group have taken into account the historical default experience and the financial position of the counterparties in estimating the likelihood of default of each of these financial assets occurring within their loss assessment time horizon.
IFRS 15 'Revenue from contracts with customers'
IFRS 15 'Revenue from contracts with customers' establishes principles for determining when and how revenue arising from contracts with customers should be recognised. An entity should recognise revenue when it transfers goods or services to a customer based on the amount of consideration to which the entity expects to be entitled from a customer in exchange for fulfilling its performance obligations.
Management has undertaken a detailed assessment of all contracts and revenue streams across all business units using the five-step approach specified by IFRS 15: identify the contract(s) with the customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognise revenue when (or as) a performance obligation is satisfied.
The Group generates revenue and other income from external customers mainly in the UK from three main types of business: Sales and Lettings, Financial Services and Business to Business (B2B). Management is required to take all relevant factors and circumstances into account when determining the revenue recognition methods that appropriately depict the transfer of control of goods or services to the customer for each performance obligation. This requires management to make certain judgements, including: the determination of the performance obligations in the contract; whether the Group is acting as principal or agent; the estimation of any variable consideration in determining the contract price; the allocation of the price to the performance obligations inherent in the contract; and an appropriate method of recognising revenue. Other key considerations comprise the appropriate accounting treatment of any costs incurred to obtain the contract and the treatment of any costs incurred to fulfil a contract.
In determining the appropriate method of recognising revenue, management is required to make judgements as to whether performance obligations are satisfied over a period of time or at a point in time. For performance obligations that are satisfied over a period of time, judgements are made as to whether the output method or the input method is more appropriate to measure progress towards complete satisfaction of the performance obligation. If performance obligations are not satisfied over time, the Group recognises revenue at a point in time.
The adoption of IFRS 15 has impacted the financial statements as follows:
-- B2B: Within the B2B business unit, Lambert Smith Hampton generates
revenue from commercial property consultancy and advisory services,
property management and valuation services. Work-in-progress (WIP)
was previously recognised on specific types of contracts. Under
IFRS 15, the performance obligations of certain contracts are deemed
to be satisfied at a point in time. As a result, the Group no longer
recognises WIP against these contracts. We continue to recognise
WIP against other contracts where the performance obligations are
satisfied over a period of time.
-- Sales and Lettings: A proportion of revenue from lettings rent collection
was previously recognised at the outset of the rent collection agreement,
together with an appropriate clawback provision, based on historical
experience. Under IFRS 15, revenue is now recognised over the life
of the rent collection agreement in accordance with the satisfaction
of the performance obligations. Subsequent to the Group's 2018 Interim
Results for the period ended 30 June 2018, further information has
identified that a proportion of revenue earned from Tenant Introduction
(or Tenant Renewal) was recognised over the life of the tenancy
agreement. This revenue is now recognised when the underlying tenancy
agreement commences (or is renewed) in accordance with the satisfaction
of the performance obligations, together with a liability for future
refunds, and has resulted in the amendment of the Group's opening
transition adjustment.
The Group adopted IFRS 15 on 1 January 2018 and has elected to restate comparative information from prior periods (see note 2(d)). The Group has applied the practical expedients under which contracts that began or ended in 2017, or contracts that were completed prior to 1 January 2017, have not been restated.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2018 reporting periods and have not been early adopted by the Group. None of these new standards or interpretations are expected to have a material impact on the consolidated financial statements of the Group, with the exception of the following:
IFRS 16 'Leases'
IFRS 16 'Leases' deals with the definition of a lease and recognition and measurement of leases and establishes principles for disclosures. The standard is effective for accounting periods beginning on or after 1 January 2019. The Group will adopt IFRS 16 for the year ending 31 December 2019.
IFRS 16 distinguishes leases and service contracts on the basis of whether an asset is controlled by a customer. Distinctions of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and are replaced by a model where a right of use asset and a corresponding liability have to be recognised for all leases by lessees (i.e. all are on balance sheet), except for short term leases and leases of low value assets.
The right of use asset is initially measured at cost and subsequently measured at cost less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. The classification of cash flows will also be impacted as operating lease payments under IAS 17 are presented in operating cash flows; whereas under the IFRS 16 model, the lease payments are split into a principal and an interest portion which will be presented as financing and operating cash flows respectively. In addition, extensive disclosures are required by IFRS 16.
As at 31 December 2018, the Group has non-cancellable operating lease commitments of GBP105,690,000. IAS 17 does not require the recognition of any right of use asset or liability for future payments for these leases; instead, certain information is disclosed as operating lease commitments in the full financial statements. A preliminary assessment indicates that these arrangements will meet the definition of a lease under IFRS 16, and hence the Group will recognise a right of use asset and a corresponding liability in respect of these leases unless they qualify for low value or short term leases upon the application of IFRS 16.
The new requirement to recognise a right of use asset and a related lease liability is expected to have a significant impact on the amounts recognised in the Group's consolidated balance sheet. Whilst the IFRS 16 assessment is ongoing it is not practicable to quantify the impact. It is likely the Group will follow a modified transition approach.
In contrast, for finance leases where the Group is a lessee, as the Group has already recognised an asset and a related finance lease liability, and in cases where the Group is a lessor (for the sub-let of properties), the directors do not anticipate that the application of IFRS 16 will have a significant impact on the amounts recognised in the Group's consolidated financial statements.
(d) Prior year error correction in respect of the restitution of trust funds
The Group holds money on behalf of parties to property transactions. For example, the Group holds deposits made by lessees of properties. Generally, the Group does not recognise client money on its consolidated balance sheet. However, the Group deposits client money in interest-bearing accounts and recognises the interest component as finance income in the Group's consolidated income statement.
The Group takes all practical and reasonable measures to identify the ownership of the funds and to trace and return funds in a timely manner. Historically, funds that remained untraceable and were more than six years old were recognised in the Group's consolidated income statement as other income and an indemnity was put in place by Countrywide Group plc to the underlying subsidiary entities to ensure that any claims arising subsequently on these funds would be met by Countrywide Group plc. In practice, less than 1% of the funds released have ever been claimed and paid out.
At the half year, following a management review of client accounting, and having received legal advice on the treatment of funds, the Group understood that some of these historical and untraceable funds arising from the Lettings business for the period from 2008 to 2017 should be held in trust under a separate client account. A liability of GBP4,681,000 in respect of certain untraceable funds for such period was therefore recognised in the Group's balance sheet in the 2018 condensed consolidated interim report, GBP4,456,000 of which was recognised as a prior year error correction, along with a related reduction in retained earnings net of deferred tax . These funds were transferred into a separate client account in August 2018. Additional investigation and further legal guidance during the second half of 2018 resulted in a revision to the accounting estimate. Accordingly, a further charge of GBP5,185,000 has been recognised as an exceptional cost in H2 2018. As a result, management has transferred an additional GBP5,185,000 into a separate client account in December 2018 in full restitution of these client funds.
The tables below show the impact of the adoption of IFRS 15 and the impact of the prior year error correction on the balance sheets as at 1 January 2017 and 31 December 2017, and on the income statement and cash flow statement for the year ended 31 December 2017. The impact of the adoption of IFRS 9 is shown on the balance sheet as at 1 January 2018.
Consolidated balance sheet
(extract) 31 December Impact of
2016 Impact of IFRS 15 Correction 1 January
As previously IFRS 15 (Sales and of prior 2017
reported (B2B) Lettings) year error Restated
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ -------------- --------- ----------- ------------ ---------
Non-current assets
Deferred tax assets 9,250 211 - 801 10,262
------------------------------ -------------- --------- ----------- ------------ ---------
Current assets
Trade and other receivables 120,355 (1,111) 2,883 - 122,127
Impact on total assets 129,605 (900) 2,883 801 132,389
------------------------------ -------------- --------- ----------- ------------ ---------
Equity and liabilities
Retained earnings 283,454 (900) 880 (3,416) 280,018
------------------------------ -------------- --------- ----------- ------------ ---------
Current liabilities
Trade and other payables 95,072 - 485 4,217 99,774
Deferred income 3,890 - 1,166 - 5,056
Provisions 19,600 - 352 - 19,952
Impact on current liabilities 118,562 - 2,003 4,217 124,782
------------------------------ -------------- --------- ----------- ------------ ---------
Impact on total equity
and liabilities 402,016 (900) 2,883 801 404,800
------------------------------ -------------- --------- ----------- ------------ ---------
Consolidated balance
sheet (extract) 31 December
Impact Impact
2017 of of Correction 31 December 1 January
As previously IFRS 15 IFRS 15 of prior 2017 Impact 2018
(Sales year of IFRS
reported (B2B) and Lettings) error Restated 9 Restated
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 2018
----------------------------- -------------- -------- --------------- ---------- ----------- -------- ---------
Non-current assets
Deferred tax assets 9,676 229 - 846 10,751 147 10,898
----------------------------- -------------- -------- --------------- ---------- ----------- -------- ---------
Current assets
Trade and other receivables 103,111 (1,201) 3,872 - 105,782 (1,121) 104,661
Impact on total assets 112,787 (972) 3,872 846 116,533 (974) 115,559
----------------------------- -------------- -------- --------------- ---------- ----------- -------- ---------
Equity and liabilities
Other reserves (16,121) - - - (16,121) (1,967) (18,088)
Retained earnings 111,007 (972) 1,875 (3,610) 108,300 993 109,293
----------------------------- -------------- -------- --------------- ---------- ----------- -------- ---------
Impact on equity 94,886 (972) 1,875 (3,610) 92,179 (974) 91,205
----------------------------- -------------- -------- --------------- ---------- ----------- -------- ---------
Current liabilities
Trade and other payables 94,779 - 485 4,456 99,720 - 99,720
Deferred income 1,379 - 1,175 - 2,554 - 2,554
Provisions 17,116 - 337 - 17,453 - 17,453
Impact on current liabilities 113,274 - 1,997 4,456 119,727 - 119,727
----------------------------- -------------- -------- --------------- ---------- ----------- -------- ---------
Impact on total equity
and liabilities 208,160 (972) 3,872 846 211,906 (974) 210,932
----------------------------- -------------- -------- --------------- ---------- ----------- -------- ---------
Consolidated income statement
(extract) Year ended
31 December Impact of Year ended
2017 Impact of IFRS 15 Correction 31 December
As previously IFRS 15 (Sales and of prior 2017
reported (B2B) Lettings) year error Restated
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ -------------- --------- ----------- ------------ ------------
Revenue 661,049 (89) 1,228 - 662,188
Other income 10,829 - - (239) 10,590
------------------------------ -------------- --------- ----------- ------------ ------------
Total income 671,878 (89) 1,228 (239) 672,778
------------------------------ -------------- --------- ----------- ------------ ------------
Adjusted EBITDA 64,687 (89) 1,228 (239) 65,587
------------------------------ -------------- --------- ----------- ------------ ------------
(Loss)/profit before taxation (212,059) (89) 1,228 (239) (211,159)
Taxation credit/(charge) 3,987 17 (233) 45 3,816
------------------------------ -------------- --------- ----------- ------------ ------------
(Loss)/profit for the period (208,072) (72) 995 (194) (207,343)
------------------------------ -------------- --------- ----------- ------------ ------------
Consolidated cash flow statement
(extract) Year ended
31 December Impact of Year ended
2017 Impact of IFRS 15 Correction 31 December
As previously IFRS 15 (Sales and of prior 2017
reported (B2B) Lettings) year error Restated
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- -------------- --------- ----------- ------------ ------------
(Loss)/profit before taxation (212,059) (89) 1,228 (239) (211,159)
Changes in working capital
(excluding effects of acquisitions
and disposals of Group undertakings):
Decrease/(increase) in trade
and other receivables 19,500 89 (1,222) - 18,367
(Decrease)/increase in trade
and other payables (8,050) - 9 239 (7,802)
Decrease in provisions (3,002) - (15) - (3,017)
--------------------------------------- -------------- --------- ----------- ------------ ------------
Impact on cash and cash
equivalents (203,611) - - - (203,611)
--------------------------------------- -------------- --------- ----------- ------------ ------------
3. Critical accounting judgements and key sources of estimation uncertainty
In application of the Group's accounting policies, which are described in note 2, the directors are required to make judgements (other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets and liabilities and the disclosure of contingent assets and liabilities. These estimates and associated assumptions are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates, given the uncertainty surrounding the assumptions and conditions upon which the estimates are based.
The estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both the current and future periods.
Critical judgements in applying the Group's accounting policies
The following are critical judgements, apart from those involving estimations (which are dealt with separately below), that the directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
Exceptional items
Certain items are presented separately in the income statement as exceptional where, in the judgement of the directors, they need to be disclosed separately by virtue of their nature, size or incidence in order to obtain a clear and consistent presentation of the Group's underlying business performance. Further details of material, non-recurring items the directors have disclosed as exceptional items, including the costs of restructuring the business, are provided in note 10.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
Impairment of goodwill and indefinite life intangible assets
Determining whether goodwill and indefinite life intangible assets are impaired requires an estimation of the value in use of the cash generating units to which the assets have been allocated. Calculating the cash flows requires the use of judgements and estimates that have been included in our strategic plans and long range forecasts. In addition, judgement is required to estimate the appropriate interest rate to be used to discount the future cash flows. The data necessary for the execution of the impairment tests is based on management estimates of future cash flows, which require estimating revenue growth rates and profit margins. Further details of impairment reviews are set out in note 14.
Certain items are presented separately in the income statement as exceptional where, in the judgement of the directors, they need to be disclosed separately by virtue of their nature, size or incidence in order to obtain a clear and consistent presentation of the Group's underlying business performance. Further details of material, non-recurring items the directors have disclosed as exceptional items, including the costs of restructuring the business, are provided in note 10.
Professional indemnity provisions
When evaluating the impact of potential liabilities arising from claims against the Group, the Group takes legal and professional advice to assist it in arriving at its estimation of the liability taking into account the probability of the success of any claims and also the likely development of claims based on recent trends.
The Group has made provision for claims received under its professional indemnity insurance arrangements. The provision can be broken down into three categories:
-- Reserves for known claims: These losses are recommended by our professional
claims handlers and approved panel law firms who take into account
all the information available on the claims and recorded on our
insurance bordereaux. Where there is insufficient information on
which to assess the potential losses, initial reserves may be set
at an initial level to cover investigative costs or nil. Further
provisions are also made for specific large claims which may be
subject to litigation and the directors assess the level of these
provisions based on legal advice and the likelihood of success.
-- Provision for the losses on known claims to increase: It can take
one to two years for claims to develop after they are initially
notified to the Group. For this reason, the Group creates a provision
based on historical loss rates for closed claims and average losses
for closed claims.
-- Provision for incurred but not reported (IBNR): The Group also provides
for future liabilities arising from claims IBNR for mortgage valuation
reports and home buyer reports performed by Surveying Services.
This provision is estimated on a future projection of historical
data for all claims received based on the number of surveys undertaken
to date. This projection takes into account the historic claim rate,
the claim liability rate and the average loss per claim. In view
of the very low number of claims received for surveys conducted
over eight years ago and the volatility that can impact on the size
of the provision, the data set has been limited to surveys conducted
within eight years. Since the data set is now limited to claims
for surveys beyond the 2004 to 2008 period prior to the financial
crisis, we no longer hold a sub-set of data for surveys conducted
during that period, which is now more than 10 years ago.
The estimate of these provisions by their nature is judgemental. The three key inputs, claim rate, claim liability rate and average loss, are very sensitive to any change in trends.
Claim rate - the number of claims received compared to the number of surveys performed.
The number of valuation claims continued to decline significantly throughout 2018 to historically low levels. There is a possible risk that a significant rise in mortgage interest rates could lead to an increase in repossessions and potential losses being incurred by the lenders. While there is uncertainty around the future of the UK economy as the Government deals with Brexit, there are no macroeconomic indicators that this is a reasonable likelihood in the short term and the directors do not consider it appropriate to provide for additional claims due to macroeconomic changes. During 2018 we experienced a modest decrease in the rate of claims received. It should be noted that a 10% increase in the valuation claim rate applied to all surveys could lead to a GBP0.4 million increase in the provision for future claims.
Claim liability rate - the number of claims closed with a loss compared to the number of closed claims.
Our claim handlers and panel lawyers robustly defend all our claims and as a result they have achieved a number of successes throughout 2017 and 2018 where clients have withdrawn their claim. In 2018 we did see a modest increase to the claim liability rate but owing to the low volumes of claims this has not had a material impact on the overall provision.
The liability rate is sensitive to changes in experience and therefore we have used the average liability rate for claims closed over three years as the most appropriate claim liability rate to estimate the provision for those claims already received. A 10% increase in the average liability rate applied to open claims at the end of the year and unreported claims anticipated would impact the provision for claims already received by GBP0.4 million.
Average loss - the average of total incurred losses for closed claims.
Average losses on claims settled have reduced by 7% in 2018 versus prior year (based on weighted average across the various claim populations). Applying a 10% increase in the average loss to the open claims received would increase the total provision required for this population (the IBNER) by GBP0.1 million.
Onerous lease provisions
Onerous lease provisions with a present value of GBP6.1 million were recognised in relation to economic outflows arising from onerous contracts in respect of loss making branches (at the direct contribution level), unwinding over periods up to 2026 (comprising GBP4.2 million in respect of onerous lease provisions and GBP1.9 million in respect of dilapidations provisions - see note 23). The economic outflows in relation to these loss making branches will continue to be monitored to ensure that provisions are unwound in line with the losses being reported within operating results, or released in full when a branch is forecast to be profitable on turnaround, or ceases to become an onerous contract due to other circumstances, for example if a branch is sublet or a lease is renegotiated so that cash flows become positive.
The liability is dependent on the status of each lease and there is no correlation between lease and poor performance. Since the liability is based on the lower of the future anticipated operating losses and the contractual commitment to the end of the lease there is the possibility for the losses for some of those branches to deteriorate and therefore the provision would increase up to the level of the lease commitment. This would add an additional GBP1.4 million to the provision.
Restitution of trust funds
As described in note 2(d), a liability of GBP4,681,000 in respect of certain untraceable funds for prior years was recognised in the Group's balance sheet in the 2018 condensed consolidated interim report, GBP4,456,000 of which was recognised as a prior year error correction, along with a related reduction in retained earnings net of deferred tax . These funds were transferred into a separate client account in August 2018. Having received further legal advice in the second half of 2018, the Group now understands that all of these historical and untraceable funds arising from the Lettings business for the period from 2008-2017 should be held in trust under a separate client account. As a result, management has transferred an additional GBP5,185,000 into a separate client account in December 2018 in full restitution of these client funds. This change in advice during the latter part of 2018 has caused a change in the accounting estimate taken at 30 June 2018, and been treated as an exceptional cost. The estimate is therefore based on full restitution of all such funds.
4. Segmental reporting
Management has determined the operating segments based on the operating reports reviewed by the Board that are used to assess both performance and strategic decisions. Management has identified that the Board is the chief operating decision maker in accordance with the requirements of IFRS 8 'Operating segments'.
The change to the Group's segmental presentation in 2018 is aligned with management's current internal financial reporting framework (including monthly management information reports reviewed by the directors, and the Board as the chief operating decision maker) and the basis on which decisions for allocation of resources and assessing performance of segments is undertaken.
The Board considers the business to be split into three main types of business generating revenue: Sales and Lettings, Financial Services and Business to Business (B2B), and 'all other segments' comprising central head office functions.
The Sales and Lettings network combines estate agency and lettings operations. Estate agency generates commission earned on sales of residential property and Lettings earns fees from the letting and management of residential properties and fees for the management of leasehold properties. The Financial Services division receives commission from the sale of insurance policies, mortgages and related products under contracts with financial service providers. Business to Business (B2B) services comprise all lines of business which are delivered to corporate clients, including Surveying Services, Conveyancing Services and revenue from Lambert Smith Hampton. Surveying Services generates surveying and valuation fees which are received primarily under contracts with financial institutions with some survey fees being earned from home buyers. Conveyancing Services generates revenue from conveyancing work undertaken from customers buying or selling houses through our network. Lambert Smith Hampton's revenue is earned from commercial property consultancy and advisory services, property management and valuation services. Other income generated by head office functions relates primarily to sub-let rental income or other sundry fees.
The Board assesses the performance of the operating segments based on a measure of adjusted EBITDA. This measurement basis excludes the effects of exceptional items, share-based payment charges and related National Insurance contributions, employment-linked contingent consideration and income from joint ventures. Finance income and costs are not allocated to the segments, as this type of activity is driven by the central treasury function which manages the cash and debt position of the Group.
The revenue from external parties reported to the Board is measured in a manner consistent with that in the income statement.
Revenue and other income from external customers arising from activities in the UK was GBP624,810,000 (2017: GBP670,407,000) and that arising from activities overseas was GBP2,261,000 (2017: GBP2,371,000).
The assets and liabilities for each operating segment represent those assets and liabilities arising directly from the operating activities of each business unit. Pension assets and liabilities, and liabilities arising from the revolving credit facility and related derivative financial instrument, are not allocated to operating segments but allocated in full to 'All other segments' within the segmental analysis as they are managed by central Group functions. Non-current assets attributable to the UK of GBP334,595,000 (2017: GBP571,848,000) are included in the total assets in the tables on the following pages. Non-current assets of GBP825,000 (2017: GBP922,000) are attributable to the overseas operations. The equity investment in joint venture is disclosed within 'All other segments' and is GBP1,464,000 (2017: GBP2,982,000).
The financial assets at fair value through profit or loss are disclosed within 'All other segments' (GBP153,000 (2017: GBP17,085,000 available-for-sale financial assets)).
2018
--------------------------------------------------------
Sales Financial All other
and Lettings Services B2B segments Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ------------- --------- -------- --------- ---------
Revenue 309,131 80,199 229,317 472 619,119
Other income 5,832 1,009 922 189 7,952
---------------------------------- ------------- --------- -------- --------- ---------
Total income 314,963 81,208 230,239 661 627,071
Inter-segment revenue 14,207 2,704 (16,911) - -
---------------------------------- ------------- --------- -------- --------- ---------
Total income from external
customers 329,170 83,912 213,328 661 627,071
---------------------------------- ------------- --------- -------- --------- ---------
Adjusted EBITDA 1,191 16,613 27,931 (13,052) 32,683
Contingent consideration 57 (1,830) (409) (3,907) (6,089)
Share-based payments (691) (225) (569) (211) (1,696)
Depreciation and amortisation (7,448) (2,493) (7,586) (4,935) (22,462)
Share of loss from joint venture - - - (1,518) (1,518)
Exceptional income - - 2,663 504 3,167
Exceptional costs (216,315) (3,131) (1,890) (20,701) (242,037)
---------------------------------- ------------- --------- -------- --------- ---------
Segment operating (loss)/profit (223,206) 8,934 20,140 (43,820) (237,952)
Finance costs (14,921)
Finance income 200
---------------------------------- ------------- --------- -------- --------- ---------
Loss before tax (252,673)
---------------------------------- ------------- --------- -------- --------- ---------
Total assets 83,858 115,597 219,880 22,328 441,663
---------------------------------- ------------- --------- -------- --------- ---------
Total liabilities 536,907 193,844 181,453 (690,808) 221,396
---------------------------------- ------------- --------- -------- --------- ---------
Additions in the year
Goodwill - - 160 - 160
Intangible assets 859 892 2,676 2,087 6,514
Property, plant and equipment 1,927 127 1,042 508 3,604
---------------------------------- ------------- --------- -------- --------- ---------
2017
--------------------------------------------------------------------
Sales
and Lettings Total
(Restated)(1) Financial B2B All other (Restated)(1)
(2) Services (Restated)(2) segments (2)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------------- --------- -------------- --------- --------------
Revenue 340,941 82,124 238,517 606 662,188
Other income 4,972 1,947 958 2,713 10,590
--------------------------------- -------------- --------- -------------- --------- --------------
Total income 345,913 84,071 239,475 3,319 672,778
Inter-segment revenue 15,566 3,253 (18,819) - -
--------------------------------- -------------- --------- -------------- --------- --------------
Total income from external
customers 361,479 87,324 220,656 3,319 672,778
--------------------------------- -------------- --------- -------------- --------- --------------
Adjusted EBITDA 27,424 19,660 35,487 (16,984) 65,587
Contingent consideration (397) (969) (62) (2,501) (3,929)
Share-based payments (652) (271) (457) (243) (1,623)
Depreciation and amortisation (20,130) (2,770) (7,583) (3,007) (33,490)
Share of profit from joint
venture - - - 690 690
Exceptional costs (217,063) (1,304) (3,844) (3,658) (225,869)
--------------------------------- -------------- --------- -------------- --------- --------------
Segment operating (loss)/profit (210,818) 14,346 23,541 (25,703) (198,634)
Finance costs (12,607)
Finance income 82
--------------------------------- -------------- --------- -------------- --------- --------------
Loss before tax (211,159)
--------------------------------- -------------- --------- -------------- --------- --------------
Total assets 287,086 120,575 233,925 59,499 701,085
--------------------------------- -------------- --------- -------------- --------- --------------
Total liabilities 539,873 204,793 219,711 (569,722) 394,655
--------------------------------- -------------- --------- -------------- --------- --------------
Additions in the year
Intangible assets 2,291 1,786 2,916 584 7,577
Property, plant and equipment 4,330 371 1,270 5,047 11,018
--------------------------------- -------------- --------- -------------- --------- --------------
1 Restated from prior year following the aggregation of previous operating segments (UK and London)
2 Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2)
Sales and Lettings Financial Services B2B All other segments Total revenue
2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------------------- ------------------ -------- ------------------ ----------------
Major service lines
Sales 149,919 539 14,604 - 165,062
Lettings 165,536 - 12,112 428 178,076
Financial Services - 79,579 - - 79,579
Surveying 327 74 71,654 - 72,055
Commercial - - 100,373 - 100,373
B2B other 7,556 2,711 13,663 - 23,930
Other - - - 44 44
--------------------------- --------------------- ------------------ -------- ------------------ ----------------
323,338 82,903 212,406 472 619,119
--------------------------- --------------------- ------------------ -------- ------------------ ----------------
Timing of revenue
recognition
Services transferred at a
point in time 163,219 54,076 150,778 44 368,117
Services transferred over a
period of time 160,119 28,827 61,628 428 251,002
323,338 82,903 212,406 472 619,119
--------------------------- --------------------- ------------------ -------- ------------------ ----------------
Sales and Lettings(1) Financial Services B2B All other segments Total revenue(1)
2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------------------- ------------------ -------- ------------------ ----------------
Major service lines
Sales 179,312 547 19,069 - 198,928
Lettings 168,807 - 11,421 546 180,774
Financial Services - 81,355 - - 81,355
Surveying 614 211 70,635 - 71,460
Commercial - - 104,579 - 104,579
B2B other 7,774 3,264 13,994 - 25,032
Other - - - 60 60
--------------------------- --------------------- ------------------ -------- ------------------ ----------------
356,507 85,377 219,698 606 662,188
--------------------------- --------------------- ------------------ -------- ------------------ ----------------
Timing of revenue
recognition
Services transferred at a
point in time 192,506 54,486 156,542 60 403,594
Services transferred over a
period of time 164,001 30,891 63,156 546 258,594
356,507 85,377 219,698 606 662,188
--------------------------- --------------------- ------------------ -------- ------------------ ----------------
Disaggregation of total segment revenue
1 Restated from prior year following the adoption of IFRS 15 (see note 2)
5. Other income
2017
2018 (Restated)(1)
GBP'000 GBP'000
----------------------- -------- --------------
Rent receivable 599 582
Other operating income 7,353 10,008
----------------------- -------- --------------
7,952 10,590
----------------------- -------- --------------
1 Restated from prior year following the correction of a prior year error (see note 2)
6. Employees and directors
2018 2017
GBP'000 GBP'000
------------------------------------------------------- -------- --------
Wages and salaries 335,245 337,727
Contingent consideration deemed remuneration(1) 6,089 3,929
Share options granted to directors and employees (note
27) (1) 1,897 1,828
Defined contribution pension costs (note 25) 9,761 8,182
Defined benefit scheme costs (note 25) 325 257
Social security costs 36,945 37,771
------------------------------------------------------- -------- --------
390,262 389,694
------------------------------------------------------- -------- --------
1 The columnar approach of our income statement separates GBP7,785,000 in respect of employee benefit costs comprising: GBP6,089,000 contingent consideration from the table above; and GBP1,696,000 of share-based payment costs (see note 4). The share-based payment costs are detailed in note 27 and comprise: GBP1,897,000 of charges (as detailed above) net of GBP201,000 credit in relation to National Insurance (reported within social security costs in the table above)
7. Other operating costs
2018 2017
GBP'000 GBP'000
----------------------------------------------------------- -------- --------
Rent 27,244 26,783
Advertising and marketing expenditure 15,031 19,590
Vehicles, plant and equipment hire 13,252 14,754
Other motoring costs 16,172 16,050
Repairs and maintenance 16,016 15,651
Trade receivables impairment (excluding exceptional charge
in 2017 (note 10)) 2,905 38
Other 121,291 130,183
----------------------------------------------------------- -------- --------
Total operating costs 211,911 223,049
----------------------------------------------------------- -------- --------
8. Finance costs
2018 2017
GBP'000 GBP'000
---------------------------------------------------------- -------- --------
Interest costs:
Interest payable on revolving credit facility 7,272 10,359
Interest arising from finance leases 163 257
Other interest paid 225 240
---------------------------------------------------------- -------- --------
Cash payable interest 7,660 10,856
---------------------------------------------------------- -------- --------
Amortisation of loan facility fee (including GBP2,220,000
of exceptional items in 2018 (note 10)) 2,764 1,525
Net interest costs arising on the pension scheme (note
25) 115 73
Other finance costs 113 153
---------------------------------------------------------- -------- --------
Non-cash payable interest 2,992 1,751
---------------------------------------------------------- -------- --------
Capital refinancing costs (note 10) 4,269 -
---------------------------------------------------------- -------- --------
Finance costs 14,921 12,607
---------------------------------------------------------- -------- --------
9. Finance income
2018 2017
GBP'000 GBP'000
---------------- -------- --------
Interest income 200 82
---------------- -------- --------
10. Exceptional items
The following items have been included in arriving at loss before taxation:
2018 2017
GBP'000 GBP'000
-------------------------------------------------------------- --------- ---------
Exceptional income
Professional indemnity 3,167 -
Exceptional costs
Strategic and restructuring costs:
People-related restructuring costs (4,234) (4,405)
Transformation project consultancy costs (7,069) (1,655)
Property closure costs (1,453) (1,861)
Total strategic and restructuring costs, excluding impairment (12,756) (7,921)
Impairment of goodwill (note 14(a)) (45,836) (192,253)
Impairment of brands (note 14(b)) (126,192) (12,871)
Impairment of customer contracts (note 14(b)) (9,605) (5,278)
Impairment of non-current assets (note 14(b), 15, 16(c)) (36,408) (4,084)
Impairment of trade receivables (note 17) - (1,641)
-------------------------------------------------------------- --------- ---------
Total impairment charge (218,041) (216,127)
Onerous lease provision (6,055) - Restitution of trust funds (5,185) - Financing costs(1) (6,489) - Professional indemnity provisions - (1,821) -------------------------------------------------------------- --------- --------- Total exceptional costs (248,526) (225,869) -------------------------------------------------------------- --------- --------- Net exceptional costs (245,359) (225,869) -------------------------------------------------------------- --------- --------- 1 Reported within finance costs (see note 8)
2018
Net exceptional costs comprise items that have resulted in cash charges of GBP19,039,000 (2017: GBP6,060,000) and GBP226,320,000 (2017: GBP219,809,000) of net non-cash charges as follows:
Exceptional income
Professional indemnity
A claim was settled in the Group's favour resulting in the recognition of GBP2,064,000 of exceptional income.
Estimating the liability for professional indemnity claims is highly judgemental and we updated our financial models to reflect the latest inputs and trends and took advice from our panel of lawyers in respect of open claims. Despite the judgemental nature of the provision, the progress made during the year on individually significant claims, aligned with the low level of claims made, resulted in the assessment of a GBP1,103,000 release in the provision.
Exceptional costs
Strategic and restructuring costs
During 2018 the Group has progressed a strategic transformation agenda for the fundamental turnaround of the business, which is expected to take place over a period of around three years, resulting in a number of exceptional costs in relation to the project and related restructuring costs. The principal elements are:
-- GBP4,234,000 relating to redundancy costs, principally arising
from the restructuring of head office functions undertaken following
our announcement on 8 March 2018, and changes to the leadership
structure that occurred during the year to progress the achievement
of the appropriate organisational structure;
-- GBP7,069,000 in respect of restructuring costs, including the
write-down of assets related to curtailed projects, third party
consultancy costs arising from a number of different projects
undertaken to tackle cost optimisation targets, including IT
transformation consultancy, and related strategic initiatives
which are being project managed centrally and routinely reporting
progress to the Group Executive Committee; and
-- GBP1,453,000 of property closure costs, all relating to closed
property provisions in respect of the London office that was
identified for closure and communicated to impacted individuals
prior to the 30 June period end. The closed property provision
covers the onerous commitment for the costs from the period from
the office vacation date at 31 October 2018 until the end of
the lease term.
Impairment charges
Significant progress has been made with the strategy and turnaround plan during the year. However, the continued subdued external environment and the deterioration in trading, which became apparent after conclusion of the 2018 business planning process that underpinned the 2017 impairment review, resulted in impairment charges taken at the half year to 30 June 2018. Cash flows driving the current impairment review align to the latest three-year strategy and turnaround plan that has been scrutinised and endorsed by the Board.
The Group incurred the following impairment charges, deemed to be exceptional given their size, arising from the impairment review of goodwill and indefinite-life intangible assets and the associated review of other intangible and tangible fixed assets impacted by the impairment review:
-- GBP45,836,000 in respect of goodwill associated with: the UK
cash generating unit of GBP14,045,000, the London cash generating
unit of GBP30,770,000 and the B2B-Commercial cash generating
unit of GBP1,021,000 following an assessment of the recoverable
value against the carrying value (see note 14);
-- GBP126,192,000 in respect of brand names associated with: the
UK cash generating unit of GBP58,270,000 (reflecting full impairments
of all brand names held) and the London cash generating unit
of GBP67,922,000 (reflecting partial impairments of all brand
names held) following an assessment of the recoverable value
against the carrying value (see note 14);
-- GBP9,605,000 in respect of customer contracts associated with:
the UK cash generating unit of GBP6,377,000 and the London cash
generating unit of GBP3,228,000 following an assessment of the
recoverable value against the carrying value (see note 14); and
-- GBP36,408,000 in respect of other non-current assets (see notes
14, 15 and 16):
- GBP2,379,000 intangible fixed assets (computer software) and
GBP17,779,000 tangible fixed assets (related computer hardware
and other assets) associated with the UK cash generating unit;
- GBP2,482,000 intangible fixed assets (computer software) and
GBP9,330,000 tangible fixed assets (related computer hardware
and other assets) associated with Head Office assets following
an assessment of the recoverable value against the carrying
value. The Head Office write-down arising as a result of impairments
identified exceeding the intangible asset carrying values within
the UK cash generating unit, triggering an impairment of GBP6,741,000
against the assets within Head Office supporting the UK cash
generating unit, and GBP2,589,000 in respect of IT hardware
identified as obsolete;
- GBP717,000 of tangible fixed assets associated with the office
in London that was identified for closure; and
- GBP3,721,000 in respect of write-off in full of three investments
into the property technology sector which, following trading
and structural changes, are deemed to have no economic value.
The costs relate to the impairment of the three equity investments
amounting to GBP2,379,000 (see note 16(d)), the associated
loan outstanding with Dynamo of GBP1,200,000, and GBP142,000
associated legal costs for the wind up of the venture.
Onerous lease provision
Onerous lease provisions with a present value of GBP6,055,000 were recognised in relation to the economic outflows arising from onerous contracts in respect of loss making branches (at the direct contribution level), unwinding over periods up to 2026 (comprising GBP4,204,000 in respect of onerous lease provisions and GBP1,851,000 in respect of dilapidations provisions - see note 23). The economic outflows in relation to these loss making branches will continue to be monitored to ensure that provisions are unwound in line with the losses being reported within operating results, or released in full when a branch is forecast to be profitable on turnaround, or ceases to become an onerous contract due to other circumstances, for example if a branch is sublet or a lease is renegotiated so that cash flows become positive.
During the year, provisions of GBP651,000 unwound as a credit to adjusted EBITDA, in line with the losses being reported within operating results.
Restitution of trust funds
In note 4.3 of our 2018 condensed consolidated interim report, we noted a prior year error correction in respect of the restitution of trust funds.
The Group holds deposits made by lessees of properties. Generally, the Group does not recognise client money on its consolidated balance sheet. However, the Group deposits client money in interest-bearing accounts and recognises the interest component as finance income in the Group's consolidated income statement. The Group takes all practical and reasonable measures to identify the ownership of the funds and to trace and return funds in a timely manner. Historically, balances that remained untraceable and were more than six years old were recognised in the Group's consolidated income statement as other income and an indemnity was put in place by Countrywide Group plc to the underlying subsidiary entities to ensure that any claims arising subsequently on these funds would be met by the Countrywide Group plc. In practice, less than 1% of the funds released have ever been claimed and paid out.
At the half year, following a management review of client accounting, and having received legal advice on the treatment of such funds, the Group understood that some of these historical and untraceable funds arising from the Lettings business for the period from 2008-2017 should be held in trust under a separate client account. A liability of GBP4,681,000 in respect of certain untraceable funds for such period was therefore recognised in the Group's balance sheet in the 2018 condensed consolidated interim report, GBP4,456,000 of which was recognised as a prior year error correction, along with a related reduction in retained earnings net of deferred tax . These funds were transferred into a separate client account in August 2018.
Having received further legal advice in the second half of 2018, the Group now understands that all of these historical and untraceable funds arising from the Lettings business for the period from 2008-2017 should be held in trust under a separate client account. As a result, management has transferred an additional GBP5,185,000 into a separate client account in December 2018 in full restitution of these client funds. This further advice during the latter part of 2018 has caused a change in the accounting estimate taken at 30 June 2018, and given the magnitude of the increase in charge, this has been treated as an exceptional cost.
Financing costs
Following the revolving credit facility amendment undertaken on 2 February 2018, previously capitalised financing fees (net of amortisation to date) of GBP1,573,000 were written off. Fees relating to this amendment were simultaneously capitalised. As part of the wider balance sheet refinancing, a subsequent amendment was made to the revolving credit facility and therefore in August 2018, fees capitalised in February 2018 (net of amortisation charged in the six months) amounting to GBP647,000 were also written off. (Fees incurred in relation to the August 2018 amendment of the revolving credit facility, amounting to GBP2,145,000 have been capitalised and will be amortised over the period to September 2022.)
In addition, costs of GBP4,269,000 were also incurred in relation to professional fees provided in respect of work undertaken to restructure the Group's borrowing and raise equity finance. Costs of GBP8,481,000 which were directly attributable to the equity raise have been offset against share premium (see note 26). Other costs incurred as part of the wider refinancing project, and specifically in relation to restructuring of borrowing, including professional fees provided in respect of work undertaken to potentially restructure the Group's borrowing which were then expensed as abortive fees, amounting to GBP4,269,000 have been treated as exceptional financing costs.
These financing costs have been treated as exceptional due to the size of the fees, but also in relation to the non-recurrent costs which have been incurred in relation to refinancing the business to facilitate the financial flexibility to undertake the turnaround transformation.
2017
Exceptional costs
Strategic and restructuring costs
During 2017 the Group commenced a strategic transformation agenda for the fundamental turnaround of the business, which is expected to take place over a period of three years, resulting in a number of exceptional costs in relation to the project and related restructuring costs. The principal elements are:
-- GBP4,405,000 relating to redundancy costs and changes to the leadership
structure that occurred during the year to progress the achievement
of the appropriate organisational structure;
-- GBP1,655,000 in respect of third party consultancy costs, for a number
of different projects scoped to tackle cost optimisation targets
and related strategic initiatives which are being project managed
centrally and routinely reporting progress to the Group Executive
Committee;
-- GBP1,861,000 of property closure costs, comprising: GBP1,515,000
of property provisions costs, in respect of dilapidations and onerous
contract costs in respect of additional premises identified and closed
during the period arising from further review, along with GBP346,000
of associated property closure costs;
Impairment charges
In addition, the Group incurred the following impairment charges, deemed to be exceptional given their size, arising from the annual impairment review of goodwill and indefinite life intangible assets, and the associated review of other intangible and tangible fixed assets impacted by the impairment review:
-- GBP192,253,000 in respect of goodwill associated with: the UK cash
generating unit of GBP151,295,000 and the London cash generating
unit of GBP40,958,000 following an assessment of the recoverable
value against the carrying value (see note 14(a));
-- GBP12,871,000 in respect of brand names associated with: the UK cash
generating unit of GBP8,425,000 (reflecting partial impairments of
Slater Hogg & Howison and Blundell Property Services) and the London
cash generating unit of GBP4,446,000 following an assessment of the
recoverable value against the carrying value (see note 14(b));
-- GBP5,278,000 in respect of customer contracts associated with: the
UK cash generating unit of GBP4,075,000; the London cash generating
unit of GBP1,103,000; and the Professional Services (B2B) cash generating
unit of GBP100,000 following an assessment of the recoverable value
against the carrying value (see note 14(b)); and
-- GBP4,084,000 in respect of other non-current assets: GBP2,669,000
intangible fixed assets (computer software) and GBP116,000 tangible
fixed assets (related computer hardware) associated with the UK cash
generating unit, and GBP734,000 tangible fixed assets associated
with the London cash generating unit following an assessment of the
recoverable value against the carrying value (the London write-down
arising as a result of impairments identified exceeding the intangible
asset carrying values); and GBP565,000 write-off of an available-for-sale
investment following the commencement of administration proceedings
against the available-for-sale investment (see notes 14(b), 15 and
16(c)).
In addition, impairment charges of GBP1,641,000 have been made against the carrying value of trade receivables. These impairments relate to assets recognised in prior periods, dating back as far as 2013, where circumstances in relation to collectability have changed during the year and principally relate to a portfolio of debts within a business acquired during 2015, now operating as part of Countrywide Residential Development Solutions (B2B). This cost has been treated as exceptional due to the age of the debt and materiality of the impairment.
Professional indemnity provisions
During 2017 the Group received reduced numbers of professional indemnity valuation claims, in line with expectations, and achieved closure of a number of challenging cases. Estimating the liability for PI claims is highly judgemental and we updated our financial models to reflect the latest inputs and trends and took advice from our panel of lawyers in respect of open claims. The judgemental nature of the provision, and progress made during the year on some individually significant claims, aligned with the low level of claims made, would have provided progress on unwinding the provision. However, an individually significant claim has resulted in the need to increase the provision by GBP1,821,000. This has been treated as an exceptional cost due to the materiality of the item.
11. Taxation
Analysis of (credit)/charge in year
2017
2018 (Restated)(1)
GBP'000 GBP'000
-------------------------------------------------- -------- --------------
Current tax on profits for the year - 1,605
Adjustments in respect of prior years (1,140) (30)
-------------------------------------------------- -------- --------------
Total current tax (1,140) 1,575
-------------------------------------------------- -------- --------------
Deferred tax on profits for the year
Origination and reversal of temporary differences (34,353) (6,293)
Adjustments in respect of prior years 975 902
-------------------------------------------------- -------- --------------
Total deferred tax (note 24) (33,378) (5,391)
-------------------------------------------------- -------- --------------
Income tax credit (34,518) (3,816)
-------------------------------------------------- -------- --------------
1 Restated from prior year following the adoption of IFRS 15 (see note 2)
2018 2017
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
Tax on items charged to equity
Deferred tax adjustment arising on share-based payments (90) (10)
--------------------------------------------------------- -------- --------
Tax on items credited/(charged) to other comprehensive
income
Deferred tax adjustment arising on pension scheme assets
and liabilities 32 690
Deferred tax adjustment arising on cash flow hedge (63) (410)
--------------------------------------------------------- -------- --------
The tax charge for the year differs (2017: differs) from the standard rate of corporation tax in the UK of 19% (2017: 19.26%). The differences are explained below:
2017
2018 (Restated)(1)
GBP'000 GBP'000
------------------------------------------------------------- --------- --------------
Loss before taxation (252,673) (211,159)
------------------------------------------------------------- --------- --------------
Loss multiplied by the rate of corporation tax in the
UK of 19% (2017: 19.26%) (48,008) (40,669)
Effects of:
Losses/(profits) from joint venture 288 (133)
Tax relief on contingent consideration 1,156 1,028
Other expenses not deductible 1,594 278
Permanent difference relating to depreciation not deductible 448 218
Tax relief on purchased goodwill 9,199 34,839
Tax relief on share-based payments charged to equity 151 168
Losses not provided / (unprovided losses utilised) 765 (430)
Adjustments in respect of prior years (165) 872
Overseas losses 54 13
------------------------------------------------------------- --------- --------------
Total taxation credit (34,518) (3,816)
------------------------------------------------------------- --------- --------------
1 Restated from prior year following the adoption of IFRS 15 (see note 2)
12. Dividends
2018 2017
GBP'000 GBP'000
----------------------------- -------- --------
Dividends (interim and final) - -
----------------------------- -------- --------
The directors do not recommend the payment of a final dividend in respect of the year ended 31 December 2018.
13. Earnings per share
Basic earnings per share is calculated by dividing the net profit or loss attributable to equity holders of the Company by the weighted average number of ordinary shares of Countrywide plc.
2017
2018 (Restated)(1)
GBP'000 GBP'000
------------------------------------------------------- ----------- --------------
Loss for the year attributable to owners of the parent (218,155) (207,343)
------------------------------------------------------- ----------- --------------
Weighted average number of ordinary shares in issue 707,628,836 232,317,964
------------------------------------------------------- ----------- --------------
Basic and diluted loss per share (in pence per share) (30.83)p (89.25)p
------------------------------------------------------- ----------- --------------
For diluted earnings per share, the weighted average number of ordinary shares in existence is adjusted to include all dilutive potential ordinary shares arising from share options.
2017
2018 (Restated)(1)
GBP'000 GBP'000
-------------------------------------------------------- --------- --------------
Adjusted earnings
Loss for the year attributable to owners of the parent (218,155) (207,343)
Adjusted for the following items, net of taxation:
Amortisation arising on intangibles recognised through
business combinations 4,006 4,127
Contingent consideration 6,181 4,202
Share-based payments charge 1,380 1,465
Exceptional income (135) -
Exceptional costs 211,190 217,755
-------------------------------------------------------- --------- --------------
Adjusted earnings, net of taxation 4,467 20,206
-------------------------------------------------------- --------- --------------
Adjusted basic and diluted earnings per share (in pence
per share) 0.63p 8.70p
-------------------------------------------------------- --------- --------------
1 Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2)
14. Intangible assets
(a) Goodwill
2018 2017
GBP'000 GBP'000
------------------------ -------- --------
Cost
At 1 January 908,669 908,669
Arising on acquisitions 160 -
------------------------ -------- --------
At 31 December 908,829 908,669
------------------------ -------- --------
Accumulated impairment
At 1 January 629,173 436,920
Impairment (note 10) 45,836 192,253
------------------------ -------- --------
At 31 December 675,009 629,173
------------------------ -------- --------
Net book amount
At 31 December 233,820 279,496
------------------------ -------- --------
Goodwill impairment charges of GBP14,045,000 (2017: GBP151,295,000), GBP30,770,000 (2017: GBP40,958,000) and GBP1,021,000 (2017: GBPNil) have been made in relation to the UK, London and B2B-Commercial cash generating units respectively following an assessment of the recoverable value against the carrying value. These charges have been included within exceptional items (note 10).
(b) Other intangible assets
2018
-----------------------------------------------------------
Customer
contracts
Computer Brand and Other
software names relationships intangibles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- --------- -------- -------------- ------------ --------
Cost
At 1 January 72,964 232,015 131,232 403 436,614
Additions 6,514 - - - 6,514
Disposals (5,215) - - - (5,215)
------------------------- --------- -------- -------------- ------------ --------
At 31 December 74,263 232,015 131,232 403 437,913
------------------------- --------- -------- -------------- ------------ --------
Accumulated amortisation
and impairment losses
At 1 January 56,524 54,199 105,142 91 215,956
Charge for the year 7,354 1,720(1) 3,175(1) 51(1) 12,300
Impairment (note 10) 4,861 126,192 9,605 - 140,658
Disposals (5,192) - - - (5,192)
------------------------- --------- -------- -------------- ------------ --------
At 31 December 63,547 182,111 117,922 142 363,722
------------------------- --------- -------- -------------- ------------ --------
Net book amount
At 31 December 10,716 49,904 13,310 261 74,191
------------------------- --------- -------- -------------- ------------ --------
1 The columnar approach of our income statement separates GBP4,946,000 from total depreciation and amortisation. This is in respect of amortisation of acquired intangibles as detailed in the table above
All amortisation and impairment charges are treated as an expense in the income statement.
In our 2017 annual report we noted that, in light of the impairment charges triggered against brand names in the previous two years, as part of our wider turnaround plan, we would undertake an assessment in 2018 to reassess our brand strategy and the related impact on the useful economic life of our brand names currently held as indefinite.
During 2018 management concluded its review of our brand portfolio and, as a result of the changing competitive landscape and the Group's internal strategy, undertook a brand name impairment review as at 30 June 2018 which resulted in impairment charges against brand names associated with the UK and London cash generating units. Finite lives of 15 years have been assigned to each of the remaining brand names held on the balance sheet at 30 June 2018. Amortisation commenced from 1 July 2018.
15. Property, plant and equipment
2018
----------------------------------------------------------
Freehold Furniture
Land and Leasehold Motor and
buildings improvements vehicles equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ---------- ------------- --------- ---------- --------
Cost
At 1 January 1,922 34,738 197 55,805 92,662
Additions at cost - 1,834 2 1,772 3,608
Disposals - (208) (56) (16,253) (16,517)
At 31 December 1,922 36,364 143 41,324 79,753
------------------------- ---------- ------------- --------- ---------- --------
Accumulated depreciation
At 1 January 367 16,558 2 33,937 50,864
Charge for the year 10 3,460 39 6,653 10,162
Impairment (note 10) 1,467 14,211 139 12,009 27,826
Disposals - (208) (41) (16,253) (16,502)
At 31 December 1,844 34,021 139 36,346 72,350
------------------------- ---------- ------------- --------- ---------- --------
Net book amount
At 31 December 78 2,343 4 4,978 7,403
------------------------- ---------- ------------- --------- ---------- --------
The June 2018 assessment of the recoverable values of cash generating units (CGUs) against their carrying values resulted in an impairment of GBP24,520,000 against tangible fixed assets held within the UK CGU (GBP17,779,000) and against Head Office tangible fixed assets (GBP6,741,000) (the Head Office write-down as a result of impairments identified exceeding the intangible asset carrying values within the UK CGU triggering an impairment of the assets within Head Office supporting the UK CGU). Tangible fixed assets of GBP717,000 associated with the central functions head office in London that had been identified for closure were also impaired.
Review of the recoverable amount of property, plant and equipment during the second half of the year resulted in a further impairment charge of GBP2,589,000 against furniture and equipment. These charges have been included within exceptional items (note 10).
In 2017, an assessment of the recoverable values of CGUs against their carrying values resulted in an impairment of GBP116,000 against tangible fixed assets held within the UK CGU and an impairment of GBP734,000 against tangible fixed assets held within the London CGU (see note 10).
Capital commitments
Capital expenditure contracted for at the end of the reporting period but not yet incurred, relating to 2018 and the subsequent year, is as follows:
2018 2017
GBP'000 GBP'000
------------------------------ -------- --------
Property, plant and equipment 1,295 1,962
Computer software 5,805 -
------------------------------ -------- --------
7,100 1,962
------------------------------ -------- --------
16. Investments
(a) Principal subsidiary undertakings of the Group
The Company substantially owns directly or indirectly the whole of the issued and fully paid ordinary share capital of its subsidiary undertakings, most of which are incorporated in Great Britain, and whose operations are conducted in the United Kingdom.
(b) Interests in joint venture
TM Group (UK) Limited
At 31 December 2018 the Group had a 33% (2017: 33%) interest in the ordinary share capital of TM Group (UK) Limited (TMG), a UK company. TMG has share capital consisting solely of ordinary shares and is a private company with no quoted market price available for its shares. TMG is one of the largest companies in the provision of searches to the property companies sector (measured by completed searches). It delivers a range of property searches and data to land and property professionals in the UK, arranges for property searches directly with specific suppliers on behalf of its own customers, and supplies IT applications and products to UK mortgage lenders.
There are no outstanding commitments or contingent liabilities relating to the Group's interest in the joint venture.
During the year, TMG was a joint venture company.
2018 2017
GBP'000 GBP'000
----------------------------------- -------- --------
At 1 January:
Net assets excluding goodwill 1,502 812
Goodwill 1,480 1,480
----------------------------------- -------- --------
2,982 2,292
----------------------------------- -------- --------
Share of (losses)/profits retained (1,518) 690
----------------------------------- -------- --------
At 31 December:
Net assets excluding goodwill (16) 1,502
Goodwill 1,480 1,480
----------------------------------- -------- --------
1,464 2,982
----------------------------------- -------- --------
c) Financial assets previously classified as available-for-sale financial assets
2018 2017
GBP'000 GBP'000
------------------------------ -------- --------
At 1 January - 16,058
Movement in fair value - 1,627
Impairment of unlisted equity - (565)
Amortisation - (35)
------------------------------ -------- --------
At 31 December - 17,085
------------------------------ -------- --------
Available-for-sale financial assets, which are all Sterling denominated, include the following:
2018 2017
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Unlisted residential property fund units - 15,766
Unlisted equity - 1,232
Debentures (acquired and amortised over the life of the
debenture) - 87
-------------------------------------------------------- -------- --------
At 31 December - 17,085
-------------------------------------------------------- -------- --------
(d) Financial assets at fair value through profit or loss
2018 2017
GBP'000 GBP'000
----------------------------------------------------- -------- --------
At 1 January(1) 16,998 -
Disposal of unlisted residential property fund units (15,766) -
Acquisition of shares in unlisted equity 1,300 -
Impairment of unlisted equity (2,379) -
At 31 December 153 -
----------------------------------------------------- -------- --------
1 Debentures (2017: GBP87,000) have been reclassified as prepayments in 2018
Financial assets at fair value through profit or loss, which are all Sterling denominated, include the following:
2018 2017
GBP'000 GBP'000
---------------- -------- --------
Unlisted equity 153 -
At 31 December 153 -
---------------- -------- --------
17. Trade and other receivables
2017
2018 (Restated)(1)
GBP'000 GBP'000
---------------------------------------------- -------- --------------
Amounts falling due within one year
Trade receivables not past due 45,510 43,018
Trade receivables past due but not impaired 14,514 25,900
Trade receivables past due but impaired 5,157 4,211
---------------------------------------------- -------- --------------
Trade receivables 65,181 73,129
Less: provision for impairment of receivables (5,157) (4,211)
---------------------------------------------- -------- --------------
Trade receivables - net 60,024 68,918
Amounts due from customers for contract work 776 2,155
Other receivables 4,036 5,311
Prepayments 16,192 19,540
Accrued income 7,329 8,628
Corporation tax asset 460 1,230
---------------------------------------------- -------- --------------
88,817 105,782
---------------------------------------------- -------- --------------
1 Restated from prior year following the adoption of IFRS 15 (see note 2)
18. Cash and cash equivalents
2018 2017
GBP'000 GBP'000
-------------------------- -------- --------
Cash and cash equivalents
Cash at bank and in hand 17,426 22,533
-------------------------- -------- --------
19. Trade and other payables
2017
2018 (Restated)(1)
GBP'000 GBP'000
----------------------------------------------------------------- -------- --------------
Trade payables 14,620 20,461
Deferred consideration 2,721 3,550
----------------------------------------------------------------- -------- --------------
17,341 24,011
Other tax and social security payable 23,581 25,065
Accruals and other payables (including contingent consideration) 50,155 58,939
----------------------------------------------------------------- -------- --------------
91,077 108,015
----------------------------------------------------------------- -------- --------------
Trade and other payables due within one year 81,146 99,720
Trade and other payables due after one year 9,931 8,295
----------------------------------------------------------------- -------- --------------
91,077 108,015
----------------------------------------------------------------- -------- --------------
1 Restated from prior year following the correction of a prior year error (see note 2)
20. Borrowings
2018 2017
GBP'000 GBP'000
-------------------------- -------- --------
Non-current
Bank borrowings 85,000 210,000
Other loans 1,000 2,840
Capitalised banking fees (1,966) (1,700)
Finance lease liabilities 398 2,349
-------------------------- -------- --------
84,432 213,489
-------------------------- -------- --------
Current
Other loans 1,993 -
Finance lease liabilities 1,670 1,011
-------------------------- -------- --------
3,663 1,011
-------------------------- -------- --------
Total borrowings 88,095 214,500
-------------------------- -------- --------
Analysis of net debt
At At
1 January Non-cash 31 December
2018 Cash flow changes 2018
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- ---------- --------- -------- ------------
Cash and cash equivalents 22,533 (5,107) - 17,426
Capitalised banking fees 1,700 3,028 (2,762) 1,966
Other loans (2,840) - (153) (2,993)
Revolving credit facility due after one year (210,000) 125,000 - (85,000)
Finance leases due after one year (2,349) - 1,951 (398)
Finance leases due within one year (1,011) 2,087 (2,746) (1,670)
--------------------------------------------- ---------- --------- -------- ------------
Total net debt, as previously reported (191,967) 125,008 (3,710) (70,669)
--------------------------------------------- ---------- --------- -------- ------------
Restatement of debt arising from prior year
correction (note 2) (4,456) 4,456 - -
--------------------------------------------- ---------- --------- -------- ------------
Total (196,423) 129,464 (3,710) (70,669)
--------------------------------------------- ---------- --------- -------- ------------
Borrowings and other loans
At the year end, the facility was a GBP125 million revolving credit facility, with any outstanding balance repayable in full on 30 September 2022. Interest was payable based on LIBOR plus a margin of 3.0%. The margin is linked to the leverage ratio of the Group and the margin rate is reviewed twice a year (and can vary between 1.75% and 3.0%). The RCF is available for utilisation subject to satisfying fixed charge, interest cover and leverage covenants and GBP125 million was repaid during the year (against a facility of up to GBP340 million at 31 December 2017, revised to GBP275 million at 2 February 2018 and revised to GBP125 million at 2 August 2018).
On 2 August 2018 the Company agreed an amendment and extension relating to the RCF, originally dated 20 March 2013, which was due to expire in March 2020. The RCF is now GBP125 million, with margin and covenants as disclosed in the Prospectus for our equity placing in August 2018. Capitalised banking fees are being amortised over the duration of the RCF, until September 2022.
'Other loans' disclosed above comprise: GBP1 million of unsecured loan notes which are non-interest bearing, repayable in 2029, which arose on the purchase of Mortgage Intelligence Holdings Limited; and loan notes payable to The Buy to Let Group Limited joint shareholder (49%) and director of GBP1,590,000 capital and associated interest charges accruing at a rate of 8% per annum repayable in 2019.
Finance lease liabilities
Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.
The present value of finance lease liabilities is as follows:
2018 2017
GBP'000 GBP'000
------------------------------------------------- -------- --------
No later than one year 1,670 1,011
Later than one year and no later than five years 398 2,349
------------------------------------------------- -------- --------
2,068 3,360
------------------------------------------------- -------- --------
21. Derivative financial instruments
2018 2017
Liabilities due after one year GBP'000 GBP'000
-------------------------------------- -------- --------
Interest rate swaps - cash flow hedge - 337
-------------------------------------- -------- --------
The interest rate swap became ineffective at the end of 2017, as forecast drawdowns would no longer be met as we sought to deleverage the business. The hedge was subsequently terminated in the first half of the year.
22. Deferred income
Deferred income will unwind as follows:
2017
2018 (Restated)(1)
GBP'000 GBP'000
----------------------------- -------- --------------
Within one year 2,143 2,554
----------------------------- -------- --------------
After one year:
Between one and two years 142 575
Between two and three years 71 78
Between three and four years 26 7
Between four and five years - 3
----------------------------- -------- --------------
239 663
----------------------------- -------- --------------
2,382 3,217
----------------------------- -------- --------------
1 Restated from prior year following the adoption of IFRS 15 (see note 2)
23. Provisions
2018
--------- ----------------------------------------------------------------------
Onerous contracts(1)
----------------------
Claims
Closed Loss making Property and
property branches repairs(1) Clawback Litigation(1) Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- ----------- ----------- -------- -------------- -------- --------
At 1 January 3,778 - 5,244 3,777 15,520 1,119 29,438
Utilised in the year (2,202) (651) (1,149) (3,528) (2,686) (995) (11,211)
Charged to income statement 1,453 4,204 2,755 3,781 589 495 13,277
Credited to income
statement (82) - (99) - (3,926) - (4,107)
Unwind of discount
rate 15 40 - - - - 55
---------------------------- --------- ----------- ----------- -------- -------------- -------- --------
At 31 December 2,962 3,593 6,751 4,030 9,497 619 27,452
---------------------------- --------- ----------- ----------- -------- -------------- -------- --------
Due within one year
or less 1,900 1,771 5,369 2,502 4,375 619 16,536
Due after more than
one year 1,062 1,822 1,382 1,528 5,122 - 10,916
---------------------------- --------- ----------- ----------- -------- -------------- -------- --------
2,962 3,593 6,751 4,030 9,497 619 27,452
---------------------------- --------- ----------- ----------- -------- -------------- -------- --------
1 See exceptional charges in note 10
The provision for onerous contracts relates to property leases and represents the estimated unavoidable costs of leasehold properties which have become surplus to the Group's requirements following the closure or relocation of operations, and additionally in 2018 in respect of loss making branches. The provision is based on the present value of rentals and other unavoidable costs payable during the remaining lease period after taking into account rents receivable or expected to be receivable from sub-lessees, on a case-by-case basis. In relation to closed or relocated operations, these costs are typically incurred over an average of a two-year period. Provisions are released when properties are assigned or sub-let. With regard to the loss making branches, these costs unwind over periods up to 2026. Provisions will be unwound in line with the losses being reported within operating results, or released in full when a branch reaches profitability on turnaround, or ceases to become an onerous contract due to other circumstances, for example if a branch is sub-let or a lease is renegotiated so that cashflows become positive.
The provision for property repairs represents estimates of the cost to repair existing dilapidations under leasehold covenants and dilapidation provisions in respect of loss making branches, in accordance with IAS 37 'Provisions, contingent liabilities and contingent assets'. The average unexpired lease length of properties against which a provision has been made is three years.
Clawback provisions represent amounts provided to meet the estimated cost of repaying indemnity commission income received on life assurance policies that may lapse in the two years following issue and estimated refunds due to customers in respect of residential lettings services.
Claims and litigation provisions comprise the amounts set aside to meet claims by customers below the level of any professional indemnity insurance excess, the estimation of IBNR claims and any amounts that might be payable as a result of any legal disputes. The provisions represent the directors' best estimate of the Group's liability having taken professional advice.
In addition to the claims provisions recognised, the Group also provides for future liabilities arising from claims (IBNR) for mortgage valuation reports and home buyer reports provided by the Surveying Services division. The basis for calculating this provision is outlined further in note 3. While there are many factors which determine the settlement date of any claims, the expected cash flows are estimated based on the average length of time it takes to settle claims in the past, which is around two years.
Other provisions mainly comprise items relating to operational reorganisation including some business closure costs and some IT transition expenses which are expected to be utilised over the next year.
24. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 17%-19% (2017: 17%-19%).
The movement on the deferred tax account is shown below:
2017
2018 (Restated)(1)
GBP'000 GBP'000
---------------------------------------------------------- -------- --------------
Net deferred tax liability at 1 January (22,771) (28,432)
Change in accounting policy(2) 147 -
---------------------------------------------------------- -------- --------------
Restated net deferred tax liability at 1 January (22,624) (28,432)
Credited to income statement 33,378 5,391
(Charged)/credited to other comprehensive income (31) 280
Charged to equity (90) (10)
---------------------------------------------------------- -------- --------------
Net deferred tax asset/(liability) at 31 December 10,633 (22,771)
---------------------------------------------------------- -------- --------------
Deferred tax asset 18,389 10,751
Deferred tax liability (7,756) (33,522)
---------------------------------------------------------- -------- --------------
Net deferred tax asset/(liability) at 31 December 10,633 (22,771)
---------------------------------------------------------- -------- --------------
Deferred tax asset expected to unwind within one year 2,056 1,530
Deferred tax asset expected to unwind after one year 16,333 9,221
---------------------------------------------------------- -------- --------------
18,389 10,751
---------------------------------------------------------- -------- --------------
Deferred tax liability expected to unwind within one year (1,114) (986)
Deferred tax liability expected to unwind after one year (6,642) (32,536)
---------------------------------------------------------- -------- --------------
(7,756) (33,522)
---------------------------------------------------------- -------- --------------
1 Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2)
2 Change in accounting policy following adoption of IFRS 9 (see note 2)
25. Post-employment benefits
The Group offers membership of the Countrywide plc Pension Scheme ('the Scheme') to eligible employees, the only pension arrangements operated by the Group. The Scheme has two sections of membership: defined contribution and defined benefit.
Defined contribution pension arrangements
The pensions cost for the defined contribution scheme in the year was GBP9,761,000 (2017: GBP8,182,000).
Defined benefit pension arrangements
In the past the Group offered a defined benefit pension arrangement; however, this was closed to new entrants in 1988 and subsequently closed to further service accrual at the end of 2003. Members of the defined benefit arrangements earned benefits linked to final pensionable salary and service at the date of retirement or date of leaving the Scheme if earlier. The weighted average duration of the defined benefit pension scheme is 13 years.
The defined benefit pension arrangements provide pension benefits to members based on earnings at the date of leaving the Scheme. Pensions in payment are updated in line with the minimum of 4% or UK Retail Price Index (RPI) inflation. The Scheme is established and administered in the UK and ultimately overseen by the Pensions Regulator. The regulatory framework requires the Group to fund the Scheme and every three years the Group needs to agree a valuation with the trustees. The funding arrangements are being reviewed as part of the current valuation being carried out as at 5 April 2018. The Group (with the trustees of the Scheme) are responsible for ensuring that pension arrangements are adequately funded and the directors will need to agree a funding programme with the trustees to bring down the deficit in the defined benefit scheme over an appropriate period. During the year, the Group paid GBP2.0 million (2017: GBP2.0 million) to the defined benefit scheme. During the year which commenced on 1 January 2019, the Group is expected to pay contributions of GBP2.0 million (2018: GBP2.0 million). Further contributions of GBP2.0 million will be made in each of the next two years, although this is subject to review as part of the current valuation as at 5 April 2018 that is being carried out.
The amounts recognised in the balance sheet are as follows:
2018 2017
GBP'000 GBP'000
---------------------------------------------- -------- --------
Present value of funded obligations (50,140) (52,905)
Fair value of plan assets 45,506 47,279
---------------------------------------------- -------- --------
Net liability recognised in the balance sheet (4,634) (5,626)
---------------------------------------------- -------- --------
The movement in the defined benefit obligation over the year is as follows:
Present
value Fair value
of of
obligation plan assets Total
GBP'000 GBP'000 GBP'000
----------------------------------------------------- ----------- ------------ --------
At 1 January 2018 (52,905) 47,279 (5,626)
Expected return on Scheme assets - 1,120 1,120
Actuarial loss - (1,651) (1,651)
Employer contributions - 2,000 2,000
Past service cost - GMP equalisation (400) - (400)
Administration cost (325) - (325)
Interest cost (1,235) - (1,235)
Actuarial gain from changes in financial assumptions 1,483 - 1,483
Benefits paid 2,917 (2,917) -
Expenses 325 (325) -
----------------------------------------------------- ----------- ------------ --------
At 31 December 2018 (50,140) 45,506 (4,634)
----------------------------------------------------- ----------- ------------ --------
26. Share capital
Called up issued and fully paid ordinary shares of 1 pence each
Share Share
Number of capital premium Total
shares GBP'000 GBP'000 GBP'000
------------------------------------- ------------- -------- -------- --------
At 1 January 2018 241,303,439 2,413 211,838 214,251
Share capital issued 1,400,000,000 14,000 126,000 140,000
Transactional costs of shares issued - - (8,481) (8,481)
------------------------------------- ------------- -------- -------- --------
At 31 December 2018 1,641,303,439 16,413 329,357 345,770
------------------------------------- ------------- -------- -------- --------
On 30 August 2018, the Company, through a firm placing and placing and open offer, issued 1,400,000,000 ordinary shares in the capital of the Company, raising gross proceeds of GBP140 million. The proceeds, net of GBP8,481,000 transaction costs, are shown in the statement of changes in equity.
At 31 December 2018, 3,273,590 (2017: 3,371,972) of the shares disclosed above have been subject to share buy-back and were held in treasury.
Where the Employee Benefit Trust purchases the Company's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the Company's equity holders until the shares are cancelled or reissued. At the year end, 1,939,064 shares (2017: 1,811,951 shares), costing GBP4,317,000 (2017: GBP5,103,000), were held in relation to matching shares of the SIP scheme.
27. Share-based payments
The Group operates a number of share-based payment schemes for executive directors and other employees. The Group has no legal or constructive obligation to repurchase or settle any of the options in cash. The total cost recognised in the income statement was GBP1,897,000 in the year ended 31 December 2018 (2017: GBP1,828,000), comprising GBP1,888,000 (2017: GBP1,944,000) of equity-settled share-based payments, and GBP9,000 (2017: credit of GBP116,000) in respect of cash-settled share-based payments for the dividend accrual associated with those options. Employer's NI is being accrued, where applicable, at the rate of 13.8%, which management expects to be the prevailing rate at the time the options are exercised, based on the share price at the reporting date. The total NI credit for the year was GBP201,000 (2017: credit of GBP205,000).
On 30 August 2018, the Company, through a firm placing and placing and open offer, issued 1,400,000,000 ordinary shares in the capital of the Company (note 26). As a result of the Capital Refinancing, the number of options outstanding under share-based payment schemes has been subject to a theoretical ex-rights price (TERP) adjustment.
The following table analyses the total cost between each of the relevant schemes, together with the number of options (or shares) outstanding:
Outstanding at 31 December
2018 2017
---------------------- ----------------------
Number Number
of options/ of options/
Charge shares Charge shares
GBP'000 (thousands) GBP'000 (thousands)
------------------------------ -------- ------------ -------- ------------
Long term incentive plan 232 23,273 753 4,027
Deferred share bonus plan 314 235 119 103
Save As You Earn plan 450 14,174 - -
Share incentive plan (shares) 901 1,939 956 1,812
1,897 39,621 1,828 5,942
------------------------------ -------- ------------ -------- ------------
A summary of the main features of each scheme is given below. The schemes have been split into two categories: executive schemes and other schemes.
Executive schemes
Long term incentive plan (LTIP)
The LTIP is open to executive directors and designated senior management, and awards are made at the discretion of the Remuneration Committee. Awards are subject to market and non-market performance criteria and generally vest over a three-year period.
Deferred share bonus plan (DSBP)
The Group operates a DSBP for executive directors and other senior employees whose bonus awards are settled partly in cash and partly in nil-cost share options at the discretion of the Remuneration Committee. The number of options that will vest is subject to market performance criteria over a three-year period and continued service.
Other schemes
Save As You Earn plan (SAYE)
The Group implemented an HMRC approved Save As You Earn (SAYE) option scheme in May 2018 after cessation of the SIP scheme. Employees were invited to acquire options over ordinary shares at a discount of 20% to their market price. The scheme started in May 2018 and will vest in May 2021. Options granted under the scheme can be exercised during a six month period starting on the third anniversary of the scheme. The SAYE scheme is not subject to any performance measures.
Share incentive plan (SIP)
An HMRC approved share incentive plan was introduced in October 2013. Under the SIP, eligible employees were invited to make regular monthly contributions into a scheme operated by Link Asset Services. Ordinary shares in the Company were purchased at the current market price and since May 2016 an award of two matching shares had been made for every three shares acquired by an employee, subject to a vesting period of three years from the date of each monthly grant. Prior to May 2016, the award comprised one matching share for every two shares acquired by an employee. The SIP scheme ended in April 2018.
28. Other reserves
The following table provides a breakdown of 'other reserves' shown on the consolidated statement of changes in equity:
Available-for-sale
Foreign financial Treasury
Merger Hedging exchange assets share
reserve reserve reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ -------- -------- --------- ------------------ -------- --------
Balance at 1 January
2017 - (1,894) (292) 340 (16,095) (17,941)
Currency translation
differences - - (30) - - (30)
Share placing 36,634 - - - - 36,634
Transfer of reserves (36,634) - - - - (36,634)
Movement in fair value
of
available-for-sale financial
assets - - - 1,627 - 1,627
Cash flow hedge: fair
value gain - 2,030 - - - 2,030
Cash flow hedge: deferred
tax on gain - (410) - - - (410)
Purchase of treasury
shares - - - - (1,397) (1,397)
------------------------------- -------- -------- --------- ------------------ -------- --------
Balance at 31 December
2017 - (274) (322) 1,967 (17,492) (16,121)
------------------------------- -------- -------- --------- ------------------ -------- --------
Change in accounting policy(1) - - - (1,967) - (1,967) ------------------------------- -------- -------- --------- ------------------ -------- -------- Balance at 1 January 2018 - (274) (322) - (17,492) (18,088) Currency translation differences - - 10 - - 10 Cash flow hedge: fair value gain - 337 - - - 337 Cash flow hedge: deferred tax on gain - (63) - - - (63) Purchase of treasury shares - - - - (499) (499) Utilisation of treasury shares for DSBP options - - - - 49 49 ------------------------------- -------- -------- --------- ------------------ -------- -------- Balance at 31 December 2018 - - (312) - (17,942) (18,254) ------------------------------- -------- -------- --------- ------------------ -------- -------- 1 Restated from prior year following the adoption of IFRS 9 (see note 2)
29. Financial risk management
Financial risk factors
The Group's activities expose it to a variety of financial risks: cash flow and fair value interest rate risk; liquidity risk; counterparty credit risk; and price risk.
The preliminary announcement does not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 31 December 2017. There have been no changes in the operation of risk management policies since the year end.
Liquidity risk
The revolving credit facility available for utilisation was revised during the year from a GBP340 million facility at 31 December 2017, to a GBP275 million facility in February 2018 and revised again to a GBP125 million facility in August 2018 and extended to September 2022 (see note 20). There has been no further material change in the financial liabilities since the prior year end.
Fair value estimation
There are no material financial assets carried at fair value and classified within available-for-sale financial assets (2017: GBP15.8 million). The 2017 unquoted residential property fund units (GBP15.8 million) were disposed of during the year.
Fair value measurements using significant unobservable inputs and valuation process
The fair value of financial assets and liabilities approximate to their carrying amount. In 2017, the fair value of the residential property fund units had been arrived at on the basis of a valuation carried out by CRBE Limited, independent valuers not connected with the Group. The valuation conformed to International Valuation Standards. The fair value was determined based on comparable market transactions on arm's length terms and was based on the Market Rent valuation technique. The fair value hierarchy of the investment property was deemed to be Level 2.
30. Related party transactions
Trading transactions
Transaction amount Balance (owing)/owed
-------------------- ----------------------
2018 2017 2018 2017
Related party relationship Transaction type GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------------------------- --------- --------- ---------- ----------
Joint venture Purchases by Group (2,232) (2,057) (158) (156)
Joint venture Rebate received/receivable 3,279 918 1,968 42
The Buy To Let Group -
Subsidiary Loan payable 153 141 1,993 1,840
Oaktree Capital Management Director's fee paid 40 40 10 10
--------------------------- --------------------------- --------- --------- ---------- ----------
These transactions are trading relationships which are made at market value. There is a loan payable within The Buy To Let Group Limited of GBP1,590,000 (and associated interest) that is payable to the joint shareholder and director in 2019 with interest payable at 8% per annum. The Company has not made any provision for bad or doubtful debts in respect of related party debtors nor has any guarantee been given during 2018 regarding related party transactions.
31. Events after the balance sheet date
After the balance sheet date and up to the date of signing the financial statements there were no events requiring disclosure.
Company information
Contacts Corporate headquarters Corporate advisors
Executive chairman Countrywide House Independent auditors
Peter Long 6 Caldecotte Lake Business PricewaterhouseCoopers LLP
Chief financial officer Park Bankers
Himanshu Raja Caldecotte Lake Drive Royal Bank of Scotland plc
Company secretary Caldecotte HSBC Bank plc
Gareth Williams Milton Keynes MK7 8JT Abbey National Treasury Services
Website Registrar plc
www.countrywide.co.uk Link Asset Services* Barclays Bank plc
Registered office The Registry AIB Group (UK) plc
Greenwood House 34 Beckenham Road Brokers
1st Floor Beckenham Jefferies Hoare Govett
91-99 New London Kent BR3 4TU Barclays Bank plc, acting through
Road its investment bank
Chelmsford Solicitors
Essex CM2 0PP Slaughter and May
Registered in England
08340090
Financial calendar
AGM 30 April
Interim results 2019
July 2019
*Shareholder enquiries
The Company's registrar is Link Asset Services. They will be pleased
to deal with any questions regarding your shareholding or dividends.
Please notify them of your change of address or other personal information.
Their address details are above.
Link Asset Services is a trading name of Link Market Services Limited.
Link shareholder 0871 664 0300 (calls cost 12p per minute plus network
helpline: extras)
(Overseas: +44 371 664 0300)
Email: enquiries@linkgroup.co.uk
Share portal: www.countrywide-shares.co.uk
Shareholders are able to manage their shareholding online and facilities
included electronic communications, account enquiries, amendment of
address and dividend mandate instructions.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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