Purplebricks is a leading UK estate agency business. Our dual-sided model combines highly experienced and professional agents with innovative digital technology.
Our continuing focus on people and technology allows us to provide our customers with exceptional, innovative and unrivalled service, while saving them money.
Strategic Report
Highlights | 3 |
Chairman's statement | 4 |
Our business model | 6 |
Chief Executive's statement | 8 |
Financial review | 11 |
Principal risks and uncertainties | 16 |
Corporate social responsibility | 18 |
S172 Statement | 21 |
Governance | |
Our Board | 23 |
Corporate governance statement | 25 |
Directors' report | 29 |
Directors' remuneration report | 31 |
Financial Statements | |
Independent auditor's report | 34 |
Consolidated statement of comprehensive income | 41 |
Consolidated statement of financial position | 42 |
Company statement of financial position | 43 |
Consolidated statement of changes in equity | 44 |
Company statement of changes in equity | 45 |
Consolidated statement of cash flows | 46 |
Company statement of cash flows | 47 |
Notes to the financial statements | 48 |
Company Information | 94 |
Strategic Report
HIGHLIGHTS
FINANCIAL HIGHLIGHTS | ||
Revenue | Revenue growth | Gross margin |
£111.1m | (2.4)% | 60.9% |
2019: £113.8m | 2019: 55%1 | 2019: 61.0% |
Operating loss | Adjusted EBITDA2 | Cash at end of year |
£(9.4)m | £1.8m | £31.0m |
2019: £(1.5)m | 2019: £6.6m | 2019: £62.8m |
OPERATIONAL HIGHLIGHTS | ||
3.8x | More sales | UK average revenue |
than the | per instruction 4 | |
2019: 3.5x | number two | £1,394 |
agent 3 | ||
UK estate | ||
2019: £1,243 | ||
Completed | Saving UK customers | |
£9.3bn | £77m | |
of UK property | in commission 5 | |
2019: £10.4bn | 2019: £77m |
- 2019 revenue growth of 55% represents the revenue growth from total operations between FY 2018 and FY 2019.
- The underlying performance of the Group is monitored internally using a variety of statutory and alternative performance measures ("APMs"), which are not defined within IFRS. Such measures should be considered alongside the equivalent IFRS measures. For full definitions and reconciliations of APMs, please refer to note 5 to the financial statements. FY 20 APMs are presented including the effects of adopting IFRS 16 (see note 2). As IFRS 16 was adopted using the modified retrospective approach, prior year comparatives have not been restated.Adjusted EBITDA is defined as Operating profit, adding back depreciation, amortisation, share-based payment charges and exceptional items.
- Source: TwentyCi data.
- ARPI: Average revenue per instruction equates to total fee income divided by the number of instructions published in the year.
- Fees paid by customers who sell with Purplebricks vs typical commission of 1.3% including VAT.
Purplebricks Annual Report and Accounts 2020 3
Strategic Report
CHAIRMAN'S STATEMENT
Strengthening our leadership and culture in a period of change
Chairman's statement
It has been a year of significant transition for Purplebricks, as we have sought to build on our exceptional six-year growth story and create a more mature organisation. An organisation that can offer even better service and greater transparency to our customers, while delivering the technology and propositions our people need to stay ahead of the competition and sell more homes.
Above all, this has been a year in which we have focused strongly on our core strategy - simplifying what we do and supporting our people, while improving our structures and processes. This has been achieved by strengthening our leadership and culture. I am grateful to Vic Darvey and his executive team for the way they are leading the next phase for Purplebricks, especially against an extraordinary and difficult backdrop as the COVID-19 crisis hit during the last few weeks of our financial year.
Focused on our core operations
Unsurprisingly, this had an impact on FY 2020 performance, and contributed to Group revenue from continuing operations being down 2.4% to £111.1m (2019: £113.8m) and an operating loss of £9.4m (2019: £1.5m). Ongoing consumer uncertainty during the year and the lockdown from March, impacted our UK revenue, down 10.7% to £80.5m. Our Canada business, which was disposed of in July 2020, contributed £30.6m of revenue in its first full year of ownership, while our exits from the Australian and US markets have allowed us to concentrate on our key operations.
Having already worked through a period of internal change during the year, I am immensely proud of the way our management team handled the business disruption due to COVID-19. They did everything that could have been expected of them - making the tough decision to put people on furlough, supporting our self-employed partners and, where
Paul Pindar Chairman
possible, reinventing the way we do business with our customers by building on things we were doing anyway.
As we come out of lockdown, Purplebricks colleagues are back in people's houses, where appropriate and with full PPE, keeping our people and customers safe.
Board priorities and changes
The Board continues to ensure that the Group's ambitions are managed against risks, with sustainable growth at the heart of our business. It is our responsibility to ensure we have a cohesive team and culture - so that our people and management are free to get on with developing the commercial side of the business with our full support.
Mike Wroe, who was our Senior Independent Director, stepped down from the Board in December 2019, and I would like to thank him for the service he has given to the Company. I am delighted to say that Simon Downing has taken on the role of Senior Independent Director on the Board. We will seek to recruit a new non-executive director to the Board, and to appoint a new chair to our Audit Committee.
Following the recent change in ownership at Axel Springer, the company that owns a 26.5% stake in Purplebricks, they have nominated a new representative on our Board to replace Dr Andreas Wiele. Stephanie Caspar joined the Board on 27 July and I look forward to working with her in the months ahead.
The Board appointed Vic Darvey as Chief Executive Officer in May 2019 to lead the business for the next phase of development, and to take the Company forward. I am pleased with the progress he has made during the year in strengthening the leadership, the appointment of an Executive Leadership Team, and beginning the transition to a digitally led, performance-based culture.
4 Purplebricks Annual Report and Accounts 2020
Strategic Report
CHAIRMAN'S STATEMENT continued
Since the end of the reporting period, in early May 2020, James Davies resigned as Chief Financial Officer after three years with Purplebricks. I would like to wish James every success for the future, while also warmly welcoming Andy Botha as our new Chief Financial Officer. Andy joins us from online travel group Secret Escapes and has an excellent track record in growing digital businesses. He also brings a strong understanding of the UK hybrid property market from his time spent with both Zoopla and PrimeLocation.
Canada disposal
As recently announced, on 15 July 2020 we completed the sale of our Canadian operations for cash proceeds of CAD$60.5m (£35m). This disposal simplifies our investment case and enables Vic and his senior leadership team to focus on investing in the UK market, where we believe there is significant opportunity to generate shareholder value.
Committed to high standards of governance
Following the management and operational changes this year, our progress on the Corporate Governance agenda was slow, but the Board remains committed to achieving high standards in our governance infrastructure appropriate to our increasing size and profile.
The Company continues to follow the Quoted Companies Alliance Corporate Governance Code ("QCA Code") and is committed to complying with the QCA Code or providing a clear explanation of any areas where we do not. You can read more about our approach in the Governance section of this report.
Distribution policy
The Board has agreed that it is too early to consider returning capital to investors at this time, due to retained losses within our reserves and the need to focus our financial resources on future opportunities. However, as we build a more mature business with a strong strategy and relatively low fixed overheads, I believe we can generate the consistent profits and cash needed to make an appropriate distribution to investors in the coming years. It is the intention of the Board that we will then move to a progressive dividend policy as the business develops and we realise our potential.
Outlook
To do that, we need to continue our journey to becoming the best known and most respected Estate Agent in the UK. When we entered the market six years ago, there were many competitors, but we have built a strong position. Our growth has enabled us to keep average costs down and, crucially, to build a market-leading platform. Market uncertainties remain, with the continuing impact of COVID-19 and potential concerns over a no-deal Brexit at the end of 2020. However, I believe we have the people, technology and functionality to empower our customers even in a difficult market, and to further open up the digital opportunities in our industry.
We will continue to build on that platform in the year ahead, enhancing our digital capabilities to ensure that we are even easier to do business with, and that we continue to outperform the market. Part of that success must be building our market share, and I am confident this will translate into significant shareholder value. But the key to achieving our objectives will be keeping things simple and improving our execution. In short, it's all about doing what we know best, and doing it well.
Paul Pindar Chairman
31 July 2020
Purplebricks Annual Report and Accounts 2020 5
Strategic Report
BUSINESS MODEL
Creating a dual-sided,
marketplace, connecting customers with self-employed agents
Key resources
PEOPLE
What makes us different
We seek a mix of capabilities with an appropriate balance of real estate and digital talent
BRAND
With extremely high levels of brand awareness, our focus is on brand consideration
TECHNOLOGY
Our digital capabilities enable us to convert consumer interest and enhance the customer journey
MANAGEMENT
Enhancing our leadership capabilities across the business has been a key focus in FY 2020
FINANCIAL
We are focused on financial discipline and making considered investments in the Group
RELATIONSHIPS
Our self-employed agents are responsible for providing services to customers on behalf of the Group
TRUSTED BRAND
We are the most positively reviewed estate agent in the UK
VALUE PROVIDER
We offer our customers convenient, accessible, stress-free and cost-effective services
HIGH PERFORMING DIGITAL CULTURE
We drive productivity and integrate with partners to create cross-selling opportunities
HYBRID MODEL
We are here for our customers, with agents on hand to help, and digital services available 24/7
TRANSFORMING THE CUSTOMER JOURNEY THROUGH TECHNOLOGY
We introduce new features, products and services relevant to our customers' needs
BEST IN INDUSTRY
AGENTS
Our agents are experienced real estate and lettings agents, ready to help at every step of the process
6 Purplebricks Annual Report and Accounts 2020
Strategic Report
BUSINESS MODEL continued
Our dual-sided business model offers a differentiated, technology-led proposition which connects customers looking to buy, sell or let a property, with transparent and low, fixed fees, with self-employed Local Property Experts (LPEs) and Local Lettings Experts (LLEs) while allowing them to operate and grow their own independent businesses under the Purplebricks brand.
What we do
Risk management | Governance | Marketdynamics |
How our risks are | We are committed to | We are able to |
managed and | improving standards of | leverage our business |
mitigated is critical to | governance, and high | model effectively, even |
our long-term success | standards of integrity | in an uncertain market |
and business ethics |
Creating value for…
EMPLOYEES & AGENTS
We employ over 400 people and 900 self-employed agents across our operations in the UK
£27.5m
Paid to our people, including COVID-19 support
BRAND
Marketing is a central element of the Purplebricks strategy and has helped us build our brand
£28.8m
Spent on marketing and advertising
CUSTOMERS &
SUPPLIERS
Providing transparent value-for- money services to customers and paying all suppliers in line with their terms of payment
£77m
Savings by our customers
INVESTORS
The Group's financial strength allows us to execute our strategy and invest in the business
£31.0m
Cash at the year end
STAKEHOLDERS
We are committed to our model of self-employed agents, supporting our local community and reducing our environmental impacts
up to £2.2m
COVID-19 support fund made available for LPEs
Purplebricks Annual Report and Accounts 2020 7
Strategic Report
CHIEF EXECUTIVE'S STATEMENT
Building on our operating platform and strategy to grow the business
Chief Executive's statement
In a year that has seen political and economic uncertainty, followed by an unprecedented lockdown of the housing market alongside much of the UK and Canada's economic activity, our strong and differentiated business model has been vital to Purplebricks' overall performance in our two markets. We have set out a new strategy this year, invested in our people and platforms, and I firmly believe we can continue to use technology to significantly reduce the cost of moving home and to provide a better service to customers.
The COVID-19 crisis, which impacted our performance at the end of the financial year, has sharpened our focus on what technology can do for our business and we continue to believe that our differentiated, technology-led proposition will drive clear business model advantages and significant opportunities to scale. As consumer expectations evolve, especially in a
Vic Darvey Chief Executive Officer
Reflecting these changes and helped by the diversity of revenues across two key markets, I'm satisfied with our performance this year and optimistic for the future, despite a challenging market that has seen some of our competitors' revenues fall considerably. Meanwhile, our exits from the US and Australian markets are now complete and the associated costs were well within the guided range.
Multiple levers help UK revenue in weakened market
We continue to maintain clear brand leadership in the UK, with awareness of the brand now at 97%. I was also delighted to see that we were one of the Top 20 most relevant brands in the UK in the annual Superbrands® insight survey, putting us in the company of other leading consumer brands such as Google, Amazon, Netflix and PayPal.
post-COVID environment, we anticipate that the hybrid model will continue to displace traditional agents as consumers look to more virtual ways of doing business.
Strengthening and restructuring the business
I am pleased with everything we have achieved this year, particularly our work towards driving operational excellence. We have done a lot to stabilise the business - controlling costs and improving our financial discipline - and have moved our culture further towards digital innovation and continuous improvement. In turn, we have become more performance driven and made significant changes to our organisational structure. All that meant we were stronger as we entered the COVID-19 crisis and we are now even better-placed for the future.
Despite the impacts of Brexit and then COVID-19 on trading conditions, we have focused on growing our basket size and improving our average revenue per instruction (ARPI) over the last year. Overall, instructions were 23% down year on year, but our revenue was down 11%.
This is due to an improved focus on ancillary attachment and other adjacent opportunities, such as mortgages and conveyancing, which resulted in our ARPI increasing 12% to £1,394, up from £1,243 last year.
ARPI
UP
12%
TO
£1,394
SHARE OF
NO. OF HOUSES
SOLD
5.1%
8 Purplebricks Annual Report and Accounts 2020
Strategic Report
CHIEF EXECUTIVE'S STATEMENT continued
We made an operating loss in the year of £9.4m, up from a loss of £1.5m in 2019, resulting from the fall in revenue as the business was impacted by a declining market and COVID-19. Our market share of UK listings for the financial year was, 3.9%1 and our share of the number of properties sold was 5.1%1 of the total market.
Impacts of COVID-19
What we couldn't have predicted, even at our Half Year results, was the arrival of the COVID-19 crisis, the devastating consequences for our communities and local economies, and the continuing impact of social distancing restrictions in our marketplace even as lockdown eases.
At the start of the crisis, we managed to pivot the organisation very quickly to smart working in both our markets, as consumers moved towards virtual valuations and viewings, and buying and selling homes online became even more important. Unlike most of our competitors, we remained open for business throughout the crisis, offering people a safe way to move home, in spite of the challenging market conditions, using both our desktop service and mobile app.
During this period, we successfully reduced a number of our costs to reflect lower levels of market activity, with the UK Coronavirus Job Retention Scheme and the Canada Emergency Wage Subsidy deployed in respect of 50% of our employees in both the UK and Canada. In addition, the Board and Executive Team voluntarily reduced their salaries by 20%. Our variable cost model has proved to be a significant advantage during this period - we have lower overheads than most of our competitors, and we can flex up and down with the market over time to manage demand.
We also created a fund of up to £2.2 million to provide support payments to our self-employed agents, many of whom operate as limited companies, so were unable to furlough or claim through the self-employed income support scheme. I have been proud to stand shoulder to shoulder with all of our people through this difficult period and, if nothing else, the COVID-19 crisis has served to further unify our Team as we work together to respond to the challenges.
I'm confident that the work we have done this year, particularly in early 2020, will ensure we are more than ready to compete in the post-COVID market, as restrictions ease but don't go away. What's very clear at the moment is that social distancing measures will be in place for the foreseeable future and consumer risk tolerance will continue to reduce. As a result, Purplebricks remains well positioned as consumers continue to shift towards apps and technology-based solutions when buying and selling a home.
Innovating to create the estate agent of the future
We continue to focus on delivering a step-change to our customer experience and ensure that the buying and selling process becomes personalised and friction free for both our customers and our agents on the ground.
Over the last year, we have continued to invest in technology and in building out our engineering capability. We've restructured our teams to accelerate our ability to deliver, with dedicated squads focused on improving the customer experience and delivering greater automation and efficiency for our agents.
With nearly 70% of our customers using Purplebricks through a mobile device, we've also increased our resources in mobile to deliver a more personalised experience for our customers.
The App now has a 4.5 star approval rating in the App Store (based on over 25,000 ratings)2 and we continue to work hard to improve our overall customer experience. I'm pleased to announce that we've also recently teamed up with Amazon so that Purplebricks' customers can now interact with Alexa to answer a range of questions about the sale of their home.
Enhancing our performance through leadership, culture and service
It's important that we continue to recruit and retain the best talent in the industry. As a result, we have spent a significant amount of time this year ensuring that we have the right capability and structure to deliver our strategy. Over the last 12 months, we have reviewed and restructured our Field operations, helping us create the right structure for success with clear leadership and the right target operating model to ensure greater performance in the Field. We have also introduced a new leadership team in the UK with a significant range of experience across a number of publicly quoted and privately-owned digital businesses.
We continue to evolve our culture and to understand how we can introduce more lean and agile processes across the business to ensure that our contact centre, central functions and Field operations work better together.
I would like to take this opportunity to thank all of our people across the business for their incredible work in what has been an extraordinary and very tough year. The changes we have made have resulted in the recruitment of several excellent people from within our organisation to new roles, as well as key external hires who have brought in market leading, best in class, digital approaches to what we do. We end the year in a much stronger position with a very clear purpose and a strong focus on continuously improving the service we provide to our customers.
- Source: Independent research from TwentyCi dates June 2020
- App Store rating as at 30 June 2020
Purplebricks Annual Report and Accounts 2020 9
Strategic Report
CHIEF EXECUTIVE'S STATEMENT continued
Evolving our pricing model
We have a business model that is based on value. It's unrivalled in the marketplace and offers consumers the opportunity to sell their homes for a fair, fixed fee. This single- minded proposition has got us to where we are today and created a business model that has resulted in Purplebricks becoming the largest estate agency brand in the UK. However, we also recognise that, to extend our market leadership, we'll need to evolve our pricing. That means looking at different pricing strategies to reduce the up-front fee and splitting the payment between listing and completion.
Following an in-depth pricing study in the first half of the year, we had hoped to pilot a new pricing structure in early 2020, but the lockdown has delayed this to the autumn. I believe reducing the level of the upfront fee will widen the market opportunity significantly, although a fixed fee element will remain a critical part of our success, as hybrid adopters remain more motivated to sell their homes. Reducing the upfront fee will reduce the barrier for many customers in instructing us - while higher fees on completion will allow our LPEs to earn more from each sale, ensuring our self-employed model will not only remain sustainable but become more attractive to the best talent in the industry.
Transforming our processes and technology
Over the last 12 months we've made significant investments in both our people and our technology to improve the level of service we provide to our customers. We've introduced the World Class Manager training programme as well as a Contact Centre School, helping to increase productivity.
We've invested in further technology to ensure customers have a choice of channel to communicate with us including the deployment of a new Omni Channel customer engagement platform and virtual valuations and viewings.
Our focus on innovation and service improvement continues to be reflected in the feedback we receive from customers. We are still the most positively reviewed estate agent in the UK with nearly 75,000 independent reviews on Trustpilot1. We have also achieved a consistently high score of 4.6/5 with Feefo and retained their 'Gold Trusted Service' award in 2020 for the second year running.
1 Trustpilot data at end July 2020.
Sale of Canadian business
While performance in our Canadian business has been improving over the last 12 months, maintaining a strong market share in Quebec and experiencing positive growth in English Canada, we announced on 15 July 2020 that we had completed the sale of our Canadian operations to the Desjardins Group. This disposal further simplifies the business and will allow us to focus management time and resources on delivering growth in our core UK market. We wish the team at DuProprio and Purplebricks Canada the very best in their new venture - and I'd like to thank them personally for the collaboration and mutual sharing of knowledge and expertise over the last couple of years.
Looking ahead
I'm optimistic about the future of our business, notwithstanding the macro environment, which remains uncertain. I expect our number of listings in the year to fall, but I think we can continue to mitigate the challenging market conditions with an operating platform and strategy that give us multiple levers we can utilise to grow our business.
Whatever happens next, trust will be important. I was delighted to see a big jump in perceptions around value and trust in Purplebricks earlier this year.
The longer-term effects of the COVID-19 crisis may temper enthusiasm for moving home, but I believe we will see a slow and solid recovery over the next 12 months. It is also possible that there could be short to medium-term implications for the competitive landscape. What we are seeing at the moment, is that people are already starting to use technology in a different way with virtual valuations and viewings being considered by a much wider audience.
What we have demonstrated through the crisis is that we can leverage our operating model successfully, maximise the opportunity and increase our market share, even in the toughest of circumstances. I believe our hybrid model will be able to deliver better service and flexibility to customers in a changed environment, and our virtual capabilities will play a key role in this.
Vic Darvey Chief Executive Officer
31 July 2020
10 Purplebricks Annual Report and Accounts 2020
Strategic Report
FINANCIAL REVIEW
Financial performance impacted by challenging market and COVID-19
Andy Botha Chief Financial Officer
Financial review
The Group delivered a resilient financial performance through the majority of FY 2020, despite the ongoing challenges in the market. However the overall results for the year were impacted by the COVID-19 crisis which affected our ability to operate in the final two months of the year.
During FY 2020 we refocused the business on the UK and Canadian markets, invested in our senior leadership team, restructured and repurposed our Field agent teams and invested in our Digital team and platforms. We also improved our financial discipline around capital allocation and marketing execution.
We exited the year with a strong cash position and balance sheet to support the next phase of our growth in the UK market.
Our gross profit margin remained steady at 61% (2019: 61%), with gross profit from continuing operations of £67.7m down 2.5% (2019: £69.4m).
Adjusted operating costs (see definition in note 5) of the continuing operations increased by 29% to £37.1m (2019: £28.7m). Conversely, marketing costs, which were largely focused on our two core markets, reduced by 16% to £28.8m (2019: £34.1m). Overall this highlights our ability to manage our variable costs quickly, and dial up and down in response to the market.
Operating costs increased through an investment in our management team capacity and capability, an increase in the capacity and responsiveness of our contact centre, and our Digital teams to deliver improvements to both our customer facing solutions and our internal processes. Following the adoption of IFRS 16, lease costs have been replaced by depreciation and interest in FY 20.
Summary of financial performance
Overall Group revenues from continuing operations of £111.1m were down 2.4% in the year (2019: £113.8m) against the backdrop of a challenging market in the UK and Canada due to ongoing political and economic uncertainty, and the impact of COVID-19 which effectively closed the housing market towards the end of the period. Due to COVID-19, at 30 April 2020 there was higher than usual uncertainty regarding the impact of the timing and profile of recovery from the crisis on the UK housing market. Based on available information, we have estimated that the future service period in respect of instructions on hand at 30 April 2020 will be approximately 35% longer than at prior year. This has led to an increase in the proportion of revenue deferred at the year end in the UK. Based on the timing and extent of the lockdown in Canada, we have assessed that no significant increase in the future service period existed as at 30 April 2020.
Adjusted EBITDA (see definition in note 5) was £1.8m, down 73% (2019: £6.6m). Given the challenges experienced towards the end of this year, we are pleased with the results of both the UK and Canada businesses, which are set out individually later in the section. The Group made an operating loss of £9.4m (FY 19: £1.5m) including share of joint venture
losses. Including the results of the discontinued operations in the US and Australia, the Group's total loss for the year was £19.2m (2019: £54.9m).
The business responded swiftly to the accelerating impacts of the COVID-19 pandemic. Due to the high degree of flexibility in our cost base we were able to adjust our operating model and cash-burn accordingly, while still remaining open for business. We continue to have a robust balance sheet and a strong cash position with £31.0m on the balance sheet as at the year-end (2019: £62.8m).
Purplebricks Annual Report and Accounts 2020 11
Strategic Report
FINANCIAL REVIEW continued
GROUP - continuing operations
Extract of Consolidated statement of Comprehensive Income | |||
and Group Alternative Performance Measures1 | 2020 | 2019 | Change |
For the year ended 30 April | £m | £m | |
Revenue | 111.1 | 113.8 | (2.4)% |
Cost of sales | (43.4) | (44.4) | (2.3)% |
Gross profit | 67.7 | 69.4 | (2.5)% |
Gross profit margin | 60.9% | 61.0% | (10) bps |
Adjusted operating costs | (37.1) | (28.7) | 29.3% |
Marketing costs | (28.8) | (34.1) | (15.5)% |
Adjusted EBITDA | 1.8 | 6.6 | (72.7)% |
Depreciation and amortisation | (6.1) | (4.4) | 38.6% |
Adjusted operating (loss) / profit | (4.3) | 2.2 | (295.5)% |
Share-based payment charge | (0.7) | (2.7) | (74.1)% |
Exceptional operating costs | (1.6) | (0.5) | 220.0% |
Share of results of Joint Venture | (2.8) | (0.5) | 460.0% |
Operating loss | (9.4) | (1.5) | (526.7)% |
UK
Extract of Consolidated statement of Comprehensive Income | |||
and Group Alternative Performance Measures1 | 2020 | 2019 | Change |
For the year ended 30 April | £m | £m | |
Revenue | 80.5 | 90.1 | (10.7)% |
Cost of sales | (28.9) | (33.3) | (13.2)% |
Gross profit | 51.6 | 56.8 | (9.2)% |
Gross profit margin | 64.1% | 63.0% | 110 bps |
Adjusted operating costs | |||
(26.2) | (19.9) | 31.7% | |
Marketing costs | (20.6) | (26.7) | (22.8)% |
Adjusted EBITDA | 4.8 | 10.2 | (52.9)% |
Depreciation and amortisation | (3.5) | (2.3) | 52.2% |
Adjusted operating profit | 1.3 | 7.9 | (83.5)% |
Share-based payment credit / (charge) | 0.1 | (2.1) | (1,047.6)% |
Exceptional operating costs | (1.6) | (0.5) | 220.0% |
Operating (loss) / profit | (0.2) | 5.3 | (1,037.7)% |
1 The underlying performance of the Group is monitored internally using a variety of statutory and alternative performance measures ("APMs"), which are not defined within IFRS. Such measures should be considered alongside the equivalent IFRS measures. FY 20 APMs are presented including the effects of adopting IFRS 16 (see note 2). As IFRS 16 was adopted using the modified retrospective approach, prior year comparatives have not been restated. For full definitions and reconciliations of APMs, please refer to note 5 to the financial statements.
12 Purplebricks Annual Report and Accounts 2020
Strategic Report
FINANCIAL REVIEW continued
KPIs
The directors use key performance indicators (KPIs) to assess performance of the business against the Group's strategy. The strategy is built around: efficiently attracting good quality customers to our website; gaining market share; and providing customers with choice to enable revenue per instruction to increase. Cost-effective marketing and a controllable operating cost base are the ingredients to a sustainably profitable business.
NEW USERS
represents the number of new unique visitors to the website in the year
AVERAGE REVENUE PER INSTRUCTION
equates to total fee income divided by the number of instructions published in the year
COST PER
INSTRUCTION
represents total marketing costs, including portal costs, divided by instructions
MARKETING AS A PERCENTAGE OF REVENUE
represents the total marketing costs, including portal costs, as a percentage of total revenue
UK KPIs | |||
2020 | 2019 | Change | |
Unique visitors (m) | 13.1 | 13.5 | (3)% |
Instructions | 53,680 | 69,892 | (23)% |
Average revenue per instruction ("ARPI") | |||
£1,394 | £1,243 | 12% | |
Cost per instruction ("CPI") | £383 | £382 | - |
Marketing costs as a % of revenue | 25.6% | 29.6% | (400)bps |
The onset of COVID-19 had a material impact on trading at the end of the year. This, combined with a very challenging property market, resulted in UK revenue falling 11% while we experienced a 23% reduction in the number of instructions. This reduction was partially offset by a 12% increase in average revenue per instruction (ARPI) to £1,394 (FY 2019: £1,243).
Due to COVID-19, at 30 April 2020 there was higher than usual uncertainty regarding the impact of the he timing and profile of recovery from the crisis on the UK housing market. Based on available information, we have estimated that the future service period in respect of instructions on hand at 30 April 2020 will be approximately 35% longer than at prior year. This has led to an increase in the proportion of revenue deferred at year end. For context, a 10% increase or decrease in the estimated service period would have increased or decreased deferred income by around £1.8m respectively.
Revenue was split 53:47 between instruction and ancillary revenue respectively (FY 2019: 56:44). This further shift in the year towards ancillary revenue becoming a greater proportion of our revenue is a result of our continued commitment to delivering value-add, complementary products to our customers.
The majority of cost of sales is represented by the earnings of self-employed Local Property Agents (LPEs). UK gross profit margin for the year was 64.1% up 110 bps from the prior year, reflecting price increases in the year.
Adjusted operating costs (see definition in note 5) were up 32% to £26.2m (FY 2019: £19.9m). These costs reflect further investment in the UK business, particularly the Digital team (where costs are only partly capitalised, based on the activity undertaken).
Marketing costs were £20.6m (FY 2019: £26.7m), down 23% year on year, reflecting our ability to effectively manage marketing spend in line with the market. Marketing cost per instruction ("CPI") was £383, marginally up from £382 in FY 2019.
Adjusted EBITDA for the year (see definition in note 5) was down by 53% to £4.8m (FY 2019: £10.2m).
Depreciation and amortisation was £3.5m, up from £2.3m in FY 2019, predominantly reflecting the increase in capitalised development costs from prior years as well as the adoption of IFRS 16 at 1 May 2019 (without restatement of FY 2019), which led to an additional £0.3m of depreciation of right-of-use lease assets. Adjusted EBITDA has also benefited from the reclassification of £0.3m of rental payments under IFRS 16.
Share-based payments gave rise to a credit in the year of £0.1m, compared to a charge of £2.1m in the prior year. This movement reflects a significant credit in the current year arising from the reversal of charges taken in previous years as options held by leavers lapsed on their leaving the business. Overall, the UK made an operating loss of £0.2m (FY 19: profit of £5.3m).
Regrettably, the Group incurred a fine from HMRC for historical breaches of certain aspects of the UK's anti-money laundering legislation. We have since improved our anti- money laundering controls.
Purplebricks Annual Report and Accounts 2020 13
Strategic Report
FINANCIAL REVIEW continued
Exceptional items
Exceptional items include amounts that management believes it is necessary to present separately in order to show a more comparable view of the underlying performance of the business. Total exceptional items this year were costs of £1.6m (FY2019: £0.5m, badged as "non-recurring costs") and comprised:
- Costs of a fundamental restructure of the sales and operational functions, primarily involving rationalisation of the network of self-employed LPEs, as described in the business model, of £1.2m
- Costs of supporting the network of independent LPEs in response to the COVID-19 crisis of £0.4m
Each of these items is expected to continue into FY 2021 and the relevant costs will be presented consistently next year. The Board expects the aggregate costs of each of these items to be material across the two years.
Canada
Extract of statement of comprehensive income and Alternative | 2019 | |||
Performance Measures1 | 2019 | from | ||
2020 | Change | acquisition on | ||
For the year ended 30 April | Proforma | 6 July 2018 | ||
£m | £m | £m | ||
Revenue | 30.6 | 29.7 | 3.0% | 23.7 |
Cost of sales | (14.5) | (13.8) | 5.1% | (11.1) |
Gross profit | 16.1 | 15.9 | 1.3% | 12.6 |
Gross profit margin | 52.5% | 53.5% | (100) bps | 53.2% |
Adjusted operating costs | (9.3) | (8.6) | 8.1% | (7.2) |
Marketing costs | (8.2) | (8.4) | (2.4)% | (7.4) |
Adjusted EBITDA | (1.4) | (1.1) | 27.3% | (2.0) |
Depreciation and amortisation | (1.0) | (0.9) | 11.1% | (0.8) |
Adjusted operating loss | (2.4) | (2.0) | 20.0% | (2.8) |
Share-based payment charge | (0.3) | (0.4) | (25.0%) | (0.4) |
Exceptional operating costs | - | - | - | - |
Operating loss | (2.7) | (2.4) | 12.5% | (3.2) |
2019 | ||||
2019 | Change | from | ||
Canada KPIs | 2020 | acquisition on | ||
Proforma | 6 July 2018 | |||
Total transactions | 31,906 | 37,819 | (15.6)% | 32,626 |
Average revenue per instruction ("ARPI") | ||||
£883 | £747 | 18.2% | £691 | |
Marketing cost per transaction | £257 | £206 | 24.8% | £227 |
Marketing costs as a % of revenue | ||||
26.8% | 28.3% | (150) bps | 31.2% | |
Canada achieved revenue growth overall, despite the COVID- 19 crisis having a significant effect on the last two months of the year.
In Quebec, we experienced a challenging and competitive environment but delivered a healthy profitable performance.
In the Rest of Canada ("ROC"), our continued marketing efforts have driven an increase in our brand awareness and an increase in revenues despite a challenging underlying market pre COVID-19, and the effects of the crisis in the last 2 months of the year.
In ROC we operate a number of service offerings which have allowed us to target different sections of the market. Focus on these new products, including a focus on generating buy-side revenues, has led to us servicing a lower number of overall clients, but at significantly higher ARPI.
A targeted reduction in marketing spend as the effect of the COVID-19 crisis became apparent has led to a slight reduction in marketing spend year on year. Canadian wage subsidy during COVID-19 crisis has offset wages and salaries by around £0.7m, allowing us to retain staff during this period.
On 15 July 2020 the Group completed the sale of its Canadian business, being all Canadian subsidiaries and the entire Canada segment, to the Desjardins Group, a Canadian cooperative financial group. Headline consideration
was $60.5m Canadian Dollars (£35m) adjusted for working capital and debt, to be verified in line with completion accounts in due course. Part of the proceeds were allocated to the repayment of intra-Group debt owed to Purplebricks Group plc.
1 The underlying performance of the Group is monitored internally using a variety of statutory and alternative performance measures ("APMs"), which are not defined within IFRS. Such measures should be considered alongside the equivalent IFRS measures. For full definitions and reconciliations of APMs, please refer to note 5 to the financial statements. FY 20 APMs are presented including the effects of adopting IFRS 16 (see note 2). As IFRS 16 was adopted using the modified retrospective approach, prior year comparatives have not been restated. The pro forma period reflects the results of Canada pre acquisition from 1 May 2019 and this information has therefore not been extracted from the audited statement of comprehensive income.
14 Purplebricks Annual Report and Accounts 2020
Strategic Report
FINANCIAL REVIEW continued
Closure of operations in the US and Australia
Throughout the closure processes in both countries, the wind- up of operations has been conducted in a responsible manner to protect the Purplebricks brand and respect commitments made to customers and business partners, while minimising costs where possible within these broader reputational parameters. The closures have now been commercially completed, with only certain legal formalities outstanding. The cash costs of closure have been at the higher end of the Group's H1 guidance of
£10.5 - £13m, however these are inclusive of the cash costs of pre-closure announcement trading losses and working capital positions unwinding. The results of US and Australia are set out within the segmental analysis at note 7.
Homeday joint venture
During the year the Group invested a further EUR 5.0m (£4.6m) in Homeday.de via its joint venture with Axel Springer. As a result of the conversion of previously existing convertible loans from JV HoldCo to Homeday, JV HoldCo's shareholding in Homeday increased in the year from 26% to 54%, and JV HoldCo therefore took control of Homeday. As part of the provisional fair value accounting for this acqusition, JV HoldCo revalued both its previous shareholding and the convertible loans to fair value immediately before conversion. This revaluation has led to a gain in JV HoldCo, of which the Purplebricks' 50% share is £2.6m. Purplebricks' share of Homeday's underlying losses for the year was £5.3m. After accounting for amortisation of intangibles arising on acquisition of £0.1m, this means that our net share of the JV HoldCo result for the year was a loss of £2.8m. Further detail is set out in note 19.
The Group has no further obligation to provide funding to Homeday.de, and no further investment is expected at this stage.
Tax
The Group reported a net tax credit of £1.7m (FY 2019: £1.3m in respect of the continuing group). This amount is comprised primarily of a £1.8 m deferred tax credit relating to the UK and Canadian businesses, less a £0.1 m current tax charge relating to the UK. Deferred tax assets continue to be recognised in full in the UK and Canada, based on expectations of sufficient taxable profits being available for utilisation of these assets in future. No tax impact is recognised in relation to either losses arising during the year or previously unrecognised losses of prior years, relating to the discontinued US and Australian businesses, as the closure of the relevant companies means there is no prospect of utilisation of their tax losses against future taxable profits.
Statement of financial position
The Group has a strong financial position to support its current activities and future growth, including a cash balance of £31.0m (30 April 2019: £62.8m). Net assets of £82.1m were £21.6m lower than the comparable figure
(30 April 2019: £103.7m) mostly as a result of the total comprehensive loss for the year of £19.3m, which includes the final losses in respect of the US and Australia. Trade receivables and payables and contract assets and liabilities are all reduced year on year, primarily reflecting the closure of the US and Australian businesses, as well as timing of creditor payments. Deferred income in the UK is reduced due to lower transaction volumes, particularly following the closure of the housing market in March 2020, partly offset by a longer service period.
Cash flow
Operating cash flow was an outflow of £24.0m (2019: £49.1m). Within this, continuing operations accounted for an outflow of £10.9m (2019: inflow of £9.9m) and for discontinued operations an outflow of £13.1m
(2019 19: outflow of £59.0m). The FY 2020 outflow from continuing operations is caused by marketing investment into the Canada business and working capital timing effects in the UK. Capital expenditure and financing items represented an outflow of £7.8m (2019: £41.2m), with an additional £4.6m investment being made in Homeday.de (2019: £27.3m in relation to our Canadian acquisition and £14.3m in Homeday.de). Total cash outflows for the period were £31.8m (2019: £90.3m), of which continuing operations comprised £18.7m and discontinued operations comprised £13.1m. There are no further contractual commitments to invest further into Homeday.de.
Approved and signed on behalf of the Board
Andy Botha, Chief Financial Officer
31 July 2020
Purplebricks Annual Report and Accounts 2020 15
Strategic Report
PRINCIPAL RISKS AND UNCERTAINTIES
PRINCIPAL RISKS AND UNCERTAINTIES
Introduction
Risk management is integral to the way we manage the Group and the heads of each business function monitor and report on their most significant risks on a continuing basis. All risks are consolidated, shared and reviewed by the senior management team and the Board, who agree on the principal risks. We seek to manage identified risks, rather than eliminate them, so as to provide reasonable mitigation against material misstatements or loss within the business. The Board reviews the risks facing the business on a quarterly basis to determine the level of risk that can be accepted in pursuit of the Group's strategic goals. Assessing the nature of these risks, the level of risk they present to business performance, and the manner in which these risks may be mitigated is critical for the success of our business over the long term. As the business grows and evolves, the Board regularly reviews its risk appetite and governance structure to ensure it is appropriate.
The principal risks facing the business, along with details of the potential impact, any movement in severity of risk since last year, and the ways in which we aim to mitigate them are set out below:
Description and impact | Change from | Monitoring and mitigation |
prior year | ||
1. COVID-19 pandemic | NEW | The Group acted swiftly, followed government guidelines and |
The UK Government's advice to refrain from selling properties | ensured the safety of staff, agents and customers was made a | |
priority. | ||
and enforced social distancing in the UK and Canada resulted | ||
in a significantly reduced level of new instructions. | Marketing and non-essential spend was stopped during the | |
The duration and severity of any restriction of trade caused by | period of lockdown to manage costs and preserve cash to | |
ensure the business emerges strongly once restrictions are | ||
the pandemic will determine the extent of any adverse impact | ||
lifted. | ||
on overall business activity, cashflow and profits. | ||
The Group has made use of the Coronavirus Job Retention | ||
Scheme and other government support to offset some of its | ||
staff costs during the period and preserve team roles to the | ||
fullest extent possible. | ||
Additionally, we created an LPE support fund dedicated to | ||
supporting our self-employed agents (Local Property Experts) | ||
in the event they did not have access to government support | ||
(see Financial review for further details). | ||
2. Macro-economic | The local market conditions in our UK and Canadian markets | |
The Group derives a material share of its revenues from the UK | are closely monitored and reported on, and the macro | |
economic conditions of the countries we operate in are under | ||
and Canada. The Group is largely dependent on the | ||
close review. | ||
macroeconomic conditions in the UK as well as being exposed | ||
to changes in macroeconomic conditions internationally. | The Group has a flexible, scalable cost base, which enables it | |
As an estate agency the Group's fortunes are closely linked | to react quickly and effectively to changes in market | |
conditions (as demonstrated during the COVID-19 pandemic). | ||
with those of the housing market and the broader economy as | ||
a whole in the countries in which we operate. | ||
Economic uncertainty, such as that created in the UK by Brexit, | ||
can adversely affect the Group's performance. |
3. Competition
The success of the Group is dependent on maintaining scale through market share while operating in a competitive sector where there are many alternatives for the customer and the potential for new entrants.
The actions of competitors, and/or our own inaction, could have a significant and adverse impact on performance.
Risks which have been assessed as more significant year on year Risks which have been assessed as less significant year on year Risks where significance is unchanged year on year
The Group's investment in marketing, service and technology has delivered a scalable, well-known and trusted brand.
We will continue to invest in our brand and in our innovative platforms to maintain a competitive advantage
16 Purplebricks Annual Report and Accounts 2020
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PRINCIPAL RISKS AND UNCERTAINTIES continued
Description and impact | Change from | ||
prior year Monitoring and mitigation | |||
4. Brand reputation | The Group actively monitors its brand sentiment and net | ||
The Group has established an identifiable and respected brand | promoter scores to ensures its marketing and services reflect | ||
customer needs. | |||
which could be damaged by factors such as unethical or | |||
unlawful activity, poor customer service, negative customer | The Group strives to maintain its reputation for being a | ||
reviews or negative press. | trusted estate agency service provided at a fixed fair price | ||
Customers considering instructing Purplebricks could see | and monitors its customer feedback, both direct and | ||
positive references from existing customers as an important | through third party providers, on a real time daily basis. | ||
part of their decision-making. As such, a failure to either | |||
deliver a professional service to existing customers or elicit | |||
positive reviews could impact our ability to grow. | |||
5. People | We have recently recruited a Chief People Officer to drive | ||
The Group's success is dependent on the quality of its | the people agenda and culture change programme. | ||
We aim to provide competitive commission packages and | |||
management, operational teams and agents. | |||
flexible working practices to attract Local Property Experts. | |||
Our failure to attract, retain and develop the required skills and | |||
We have created a strong employee brand, and invest in the | |||
continue to evolve our culture could result in an impact on the | |||
recruitment, development and retention of our teams to | |||
delivery of our service to customers and our strategic goals. | |||
maintain employee engagement and loyalty. | |||
6. Compliance with laws and regulations | We operate ongoing monitoring of developments within the | ||
The Group operates in a sector with an evolving legal and | industry, embedding any changes within our systems and | ||
processes. | |||
regulatory environment and monitors developments to ensure | |||
legal, regulatory and ethical compliance. Failure to do so | The Board and Audit Committee are regularly updated | ||
would adversely impact the Group's reputation and operations. | about changes to the regulatory environment and any | ||
As referred to in the Financial Review section of this report, | particular challenges these may create. | ||
during the year the Group incurred a fine from HMRC for | Ongoing improvements to controls and processes have been | ||
historical breaches of certain aspects of the UK's anti-money | |||
made with regard to anti-money laundering checking to | |||
laundering legislation. | |||
prevent recurrences. | |||
7. Business model | A restructure of the field teams in early 2020 provided a | ||
The estate agency services we provide are performed by a | robust performance management and operating structure | ||
for agents and territory owners. In addition, the Group has a | |||
network of self-employed agents who are independent of the | |||
dedicated management team in place to manage and | |||
Group. Any failure by the agents to comply with applicable | |||
support its self-employed agents, while the Group's | |||
laws and regulations in respect of their own business activities | |||
Compliance Team monitor adherence to laws and | |||
could be detrimental to them and the wider Group. | |||
regulations. | |||
8. Cyber security and protection of data | The Group's dedicated Technology Team monitors the | ||
The Group's website and IT environments could be the target | resilience of our IT systems on an ongoing basis to ensure | ||
that customers and their data are protected. | |||
of cyber-attacks, which could result in significant operational | |||
disruption and/or data loss. | Regular penetration testing and Distributed Denial of Service | ||
Non-compliance with legal or other regulatory requirements | (DDoS) are undertaken across the Company's IT estate and | ||
the Technology Team is alert to the technical abilities of | |||
relating to customer data security and data privacy in the | |||
hackers. | |||
course of our business activities, could result in significant | |||
reputational or financial damage to the Group. | GDPR legislation is considered as part of every digital | ||
development to ensure we embed compliance within the | |||
Group's processes. Further, all staff receive training on | |||
security, data protection and compliance matters. |
9. Financial controls
Inaccurate financial information may result in sub-optimal decisions being taken by management and inadequate financial controls could result in financial loss to the Group.
The systems of internal controls deployed within the Group are designed to prevent financial loss, and improvements continue to be made in the control environment and procedures.
Controls are strongest in areas where management considers the potential exposure to the Group of material loss or misstatement to be at its greatest, including areas such as bank accounts, cash collection and revenue recognition.
Purplebricks Annual Report and Accounts 2020 17
Strategic Report
CORPORATE SOCIAL RESPONSIBILITY
CORPORATE SOCIAL RESPONSIBILITY
At Purplebricks, we recognise the impact we have on the communities we work in and the responsibility this brings, and we work hard to integrate key Environmental, Social and Governance (ESG) elements into what we do. Our responsible approach to business is backed by our 'Purple Promises' and is focused on three core areas: our people and culture; our communities; and the environment.
People and culture
We have created a strong brand advocacy within the business and among our customers. This collective desire to grow the business has always been a pillar of the Purplebricks culture.
Our Purple Promises
- We focus on people, not just property;
- We go the extra mile for every customer, every time;
- We treat everybody fairly and with respect; and
- If we say we will do something, we do it.
As the business evolves its enhanced digital service offering, we are determined to ensure our culture and values align to those of a high-performing digital business. Our people are integral to improving the professionalism and performance of the Group across all our operations. That's why, at the end of the financial year, we appointed our first Chief People Officer, who will be responsible for all aspects of our People strategy - from recruiting and retaining the best talent in the industry, to ensuring we have the structure in place to deliver a high performing culture.
Diversity and inclusion
We maintain a strong commitment to equality and opportunity in our employment policies and our practices in the workplace. Through our recruitment and selection processes, we seek to attract and retain a diverse and talented workforce. One of the areas of focus for our new Chief People Officer will be to ensure diversity and inclusion is at the top of our strategic agenda, as we recognise that we need to be doing more as a business to support and promote wider diversity across the organisation.
Developing our people
Having the right people with the relevant skills will be vital to us achieving our House Strategy. The focus of our training and development activity during the year has been primarily on induction training for our new Central Property Team members and our new Local Business Partners.
We have invested in the skills of our customer-facing teams, developing two new training programmes. We introduced 'World Class Managers' - a programme for all leaders in our Contact Centre to give them a strong basic grounding in what good leadership looks like. We also put our Central Property Team through our 'Call Centre School'. More than 160 of our employees have attended at least one of these programmes during the year, and we have improved our contact centre retention rate.
Employee engagement
Engaging with our employees and self-employed agents has always been a priority for the business. We operate and actively encourage an open culture where all employees have ready access to the senior leadership team. This is facilitated by a very active internal social network, regular Q&A video sessions with the Senior Leadership team, and detailed insight into the changes and improvements in the business provided by the service leads. We surveyed our employees in September 2019 and employee wellness was identified as high on the list of priorities to address.
Health, safety and wellbeing
We are committed to the highest standards of health and safety in our work activities for our employees, our customers, and our partners. In a business environment where social distancing and concerns over the transmission of COVID-19 are likely to remain for some time, we will ensure that our people have access to the appropriate PPE for as long as is needed. We will also make use of our enhanced technology platform to provide ways of working that keep safety in mind at all times.
We actively promote and support the wellbeing of all our employees. As part of our partnership with Team GB, they have helped us launch a company-wide wellness programme, with the aim of educating, supporting and empowering our people to perform at their best as part of 'Team PB' (Team Personal Best). Details of this initiative are on the following page.
Gender breakdown as at 30 April 2020
18 Purplebricks Annual Report and Accounts 2020
Strategic Report
CORPORATE SOCIAL RESPONSIBILITY continued
Supporting our people through COVID-19
The speed and impact of the COVID-19 crisis took us all by surprise, but as an organisation we were able to respond quickly and take immediate measures to protect the business and our colleagues, using the Government's furlough scheme to protect the employment and income of many of our employees. However, with a self-employed agent model, more than 600 of our Local Property Experts, many of whom operate as limited companies, were unable to access the Coronavirus Job Retention Scheme. We responded to this issue by creating a fund of up to £2.2 million to provide support payments through this difficult period.
CASE STUDY
Getting fit and ready for the future
Purplebricks is immensely proud of its links with Team GB - an association that will continue up to and beyond the
rescheduled Olympic Games in 2021. As well as playing a key role in our external advertising and marketing campaigns, Team GB has helped us launch a company- wide wellness programme, with the aim of educating, supporting and empowering our people to perform at their best as part of 'Team PB'.
The programme takes a holistic approach to discussing health and wellbeing topics alongside the factors that impact performance in pressurised, demanding environments. The focus is on helping people with physical and mental wellbeing - through a range of topics like advice on nutrition, exercise, goal setting - helping our people achieve their personal best in both their work and personal lives. We ran a half day launch event in Solihull in November 2019, with the help of Team GB athletes, and have followed this up with sessions at our workplaces that are designed to be informative, exciting, interactive and have an element of 'fun' - making use of short selfie videos made by athletes to catch our employees' attention.
CASE STUDY
Supporting our agents in the field
At Purplebricks, we are proud to stand side-by-side with our people and support them, even when times are tough. The COVID-19 crisis has had a particular impact on those who are self-employed working through a limited company. That's why we committed to help our Local Property Experts (LPEs) by establishing a dedicated fund of up to £2.2m at the beginning of the crisis.
This fund has proved to be a lifeline for many of our LPEs, including Jane and Hugh Harkin, a married couple who run a Local Property Company in Lanarkshire. They had to take care of their young granddaughter because their daughter is a nurse at Monklands General Hospital, and was asked to work on the COVID ward. This signalled a change of priorities for the Harkin family - Jane continued working to help customers, supported by an incentive and top-up payment, while Hugh has also been supported financially, with his key role focusing on social media and engaging customers virtually.
Supporting our communities
An important part of the Company's culture and ethos is to give back to the public and local communities in which we operate through the commitment of time, resources and fundraising activities. Our employees are active in raising money or supporting fundraising activities for a wide range of causes both local and national, including Bookmark Reading Charity.
Purplebricks Annual Report and Accounts 2020 19
Strategic Report
CORPORATE SOCIAL RESPONSIBILITY continued
Managing our environmental impacts
As an online business with an extremely lean physical infrastructure and a marketing model that is largely paperless, our impact on the environment is relatively low for our industry. However, across our operations we remain committed to minimising our environmental impact and to actively managing our carbon footprint.
During the year, we engaged a specialist environmental consultancy, Envantage Ltd, to carry out an independent and detailed energy audit to calculate our energy usage and GHG emissions. Following their audit, we have assigned an energy manager with responsibility for reviewing and actioning the SECR report recommendations as appropriate. Under SECR, we will continue to monitor our energy usage and report our emissions intensity each year. More details on our SECR reporting can be found on page 28.
Non-financial information statement
The table below sets out where stakeholders can find information in our Strategic Report that relates to non-financial matters detailed under Section 414CB of the Companies Act 2006.
Reporting requirement | Where to read more in this report |
Environmental matters | CSR statement - environmental policy, impact and greenhouse gas information page 20 |
Employees | CSR statement - people policies, gender diversity, employee involvement, health & safety pages |
19-120 | |
Human rights | Directors' report - ethical business, supply chain, human rights page 27 |
Social matters | CSR statement - communities page 19 |
Anti-bribery and corruption | Directors' report- anti-bribery and corruption page 27 |
Business model | Business model pages 6-7 |
Key risks and uncertainties | Key risks and uncertainties pages 16-17 |
Non-financial KPIs | KPIs pages, 3 & 13 |
20 Purplebricks Annual Report and Accounts 2020
Strategic Report
S.172 STATEMENT
HOW WE ENGAGE WITH OUR STAKEHOLDERS
Our unique hybrid, dual-sided business model connects buyers, sellers, landlords and renters with our self-employed agents. It is enabled by our digital platform, but is reliant upon Purplebricks working with, listening to and responding to all our stakeholders' needs. Without a good understanding of their needs, the business could not deliver a sustainable business for our shareholders and wider stakeholders.
Directors' s.172 statement
Section 172 of the Companies Act 2006 requires a director of a company to act in the way he or she considers, in good faith, would most likely promote the success of the company for the benefit of its members as a whole. In doing this s.172 requires a director to have regard, among other matters, to the:
- likely consequences of any decisions in the long term;
- interests of the company's employees;
- need to foster the company's business relationships with suppliers, customers and others;
- impact of the company's operations on the community and environment;
- desirability of the company maintaining a reputation for high standards of business conduct; and
- need to act fairly as between members of the company.
The Board seeks to understand the views and needs of the Group's key stakeholders to ensure that we make decisions with consideration for all our stakeholder groups and addresses their long-term needs and concerns. Where there may be competing priorities, these are discussed by the Board and the commercial, human and broader business impacts are considered against the longer-term sustainability of the business. The Board considers its key stakeholders to be its employees, self-employed agents, customers, shareholders, suppliers and community. It takes seriously the views of these stakeholders in setting and implementing our strategy. The Company takes its environmental responsibilities very seriously and is committed to reducing the footprint of its operations. As an online business its operations has a low impact on the environment. The Company will assess options to reduce environmental impact in FY 2021. The Directors consider that they have acted in a way that would promote the success of the Company for the benefit of its members as a whole, having regard to matters set out in s.172 (1) of the Companies Act 2006.
Set out here are some specific examples of how the directors had regard to the matters set out in s.172 during the year.
1. Strategic review and closure of Australia and US operations
In May 2019 the Board took the decision to close the Australia operation after experiencing increasingly challenging market conditions and an unfavourable market outlook. This decision was taken with wider consideration for the dedicated team who had worked hard to gain the scale needed to succeed as well as existing customers. A reduced team was kept in in place to ensure a professional wind down of the business and to ensure the business was able to continue to deliver great outcomes for the remaining customers. At the same time a strategic review was also undertaken of the business in the US which was operational in seven states. The review, taking into consideration the long-term feasibility of delivering growth, also focused on the concerns of investors as well as the welfare of our locally employed team and customers. The Board's review concluded it would take gtreater management time and resources to deliver on the US opportunity than the Company was able to commit and a decision was made in July 2019 to close the business. The Board's agreed closure plan was conducted to protect the Purplebricks brand and respect commitments made to customers and business partners, while minimising costs within these broader reputational parameters.
2. Restructure of the LPE Field teams
The new House Strategy shared with Investors in July 2019, highlighted the need to address the variation in performance across the Local Property Experts teams and the desire by the Board to attract the best professionals to these roles through improved incentivisation. The decision to restructure was taken carefully, balancing the needs of the self-employed agents and the longer-term sustainability of the hybrid business model. The restructure reduced the number of Territory owners from 120 to 43, put clear leadership and performance management structures in place and set out to improve the remuneration of the agents to compete with their High Street peers.
The following table, in combination with the Corporate Governance Statement on pages 25-28, sets out how we have engaged with key stakeholders in FY 2020 and how this has provided valuable input into the Board's decision making, both this year and for the longer-term. This engagement sets the context for our new 'House strategy' and our business model, as detailed on pages 6-7, and has influenced our commercial approach, capital structure and dividend policy.
Purplebricks Annual Report and Accounts 2020 21
Strategic Report
S.172 STATEMENT continued
Key stakeholders - our approach
EmployeesAgents
Customers and regulators
- All employees have an annual personal appraisal and regular one-to- one meetings with their line manager to monitor performance against an agreed plan.
- The Senior Leadership Team holds monthly Q&A calls with all employees enabling sharing of information and gathering of employee feedback.
- An Annual Employee Survey was undertaken in October 2019 and a summary provided to the Board.
-
Senior management, senior employees and executive directors are incentivised through the Company Performance Share Plan. During the year 2,461,200 options were granted under the PSP scheme.
For more information on our employee policies and employee engagement see CSR section pages 18-19,
- During the year we restructured our field teams into 42 regions. Our LPEs were consulted and communicated with through the period of change. The senior leadership team worked with their regional operators to create a more engaged and better remunerated field team in line with the new strategy.
- LPEs have direct access to the same communication channels of directly employed staff and actively participate in Company events, the Senior management Q&A and the Annual Conference.
For more information see Chief Executive Officer's statement page 9 and page 21 above.
- Purplebricks completed over £9.3bn worth of property in the year. Customers are central to all decisions made by the Company and the Board considers the needs of customers when taking decisions on all aspects of the Companies interactions with customer including; technology employed on the website and app, standards and behaviours of our self- employed agents, quality and availability of post sales service and reviews of our pricing.
- As an approved representative of the FCA we engage with the regulator and take its views into consideration across our operation.
For more information see Principal risks and uncertainties page 17 and Financial Review review page 14.
Shareholders
- We hold investor roadshows at the time of our full year and half year results, enabling our institutional investors to meet with the CEO and CFO.
- We attend, present and network at investor conferences, enabling direct access to our CEO and CFO.
- All recorded results presentations and CEO interviews are made available online through our investor website, purplebricksplc.com
- Our advisers provide a mechanism through which investors can provide feedback to the Company.
- The Board receives monthly reports on investor views, and related activity, as well as ad hoc updates outside the monthly Board reporting as required.
For more information, see
Directors' Report page 30.
Suppliers and communities
- While we have a relatively small supplier base, Purplebricks is committed to treating all our suppliers fairly.
- We endeavour to pay all suppliers in line with their payment terms and, where this is not possible, we take steps to minimize the impact on the supplier.
- At the end of 2019, Purplebricks became an official partner of Team GB, providing sponsorship to the Team and promoting their individual athletes through our TV advertising campaign.
- Since 2018 we have been a partner of the Bookmark Reading Charity, providing funding and support to help children develop their reading skills.
For more information on our community involvement,
see our CSR section on pages 18-19.
22 Purplebricks Annual Report and Accounts 2020
Governance
BOARD OF DIRECTORS
OUR BOARD
Paul Pindar | Vic Darvey | Andy Botha | ||
Non-Executive | Chief Executive | Chief Financial | ||
Chairman | Officer | Officer | ||
Paul was an early investor in Purplebricks and became the Group's Chairman in December 2015. Since December 2019, he has also chaired the Audit Committee.
Paul was the third-longest serving FTSE 100 CEO when he stood down from Capita plc in 2014. When he joined as Finance Director in 1987, after advising on the £0.3 million management buyout (MBO) of the business while working for 3i Group plc, Capita had 33 employees and an annual revenue of £1.3 million. Paul became Managing Director in 1991 and Chief Executive in 1999, and when he left the business in February 2014, Capita had more than 62,000 employees and a market capitalisation of £7.5 billion.
Since June 2014, Paul has served as Chairman of Independent Clinical Services, following its acquisition by TowerBrook. In September 2017, Paul became Non-Executive Chairman of Literacy Capital plc and is also Chairman of Bookmark Reading Charity's Corporate Partnership Board.
Vic was appointed Group Chief Executive Officer in May 2019, having joined Purplebricks in January 2019 as Group Chief Operating Officer.
Vic has a proven record of technology delivery and leadership of cutting- edge data-led,customer-focused, commercial innovation. He is a digital leader with more than 20 years' experience successfully scaling a number of international consumer brands, most recently as Managing Director of MoneySupermarket.com. Vic has held leadership roles across a number of highly competitive and disruptive businesses, including LastMinute.com.
Andy joined Purplebricks from online travel group Secret Escapes in May 2020. He has more than 25 years' business experience and brings with him an extensive background in M&A, corporate finance, strategic planning, investor relations, financial planning & reporting and risk management.
Andy was previously Group CFO at ZPG, the digital media business that owns and operates some of the UK's most recognised online brands, including digital property portal Zoopla, PrimeLocation, uSwitch and Money.co.uk. This experience has seen Andy develop a strong understanding of the UK hybrid property market. He has also worked for a number of other publicly quoted and privately‐owned digital businesses, including Lastminute.com, Betfair and Notonthehighstreet.
GENDER BREAKDOWN OF OUR BOARD
As at 3 August 2020
Board 17% FEMALE
5:1
Changes in the year:
During the year Michael Bruce stepped down as Chief Executive Officer on 7 May 2019 and Michael Wroe stepped down as Non-Executive Director on 12 December 2019. Since the year end James Davies resigned as Chief Financial Officer, effective 8 May 2020.
Purplebricks Annual Report and Accounts 2020 23
Governance
BOARD OF DIRECTORS continued
Simon Downing
Senior Independent
Director
Simon has over 30 years of experience in the technology industry and was the founder of Civica Group, one of the UK's largest privately owned software companies. He led the business from inception to IPO in 2004 and then, three subsequent private equity backed buyouts, the most recent sale, in 2017, valuing the business at over £1 billion.
In addition to his continuing role as Chairman of Civica, Simon is also Chairman of Audiotonix, the global market leader in professional audio mixing consoles, Chairman of Edenhouse Solutions, a specialist SAP support and consultancy, and is an non-executive director at both Datum Datacentres and Literacy Capital.
Simon is a graduate engineer, his early career included a variety of management roles in the IT industry and he is a past winner of the UK Ernst & Young Technology and IT Services Entrepreneur of the Year award.
Adrian Blair
Independent
Non-Executive
Director
Adrian joined the Board in April 2018. He chairs the Nomination Committee and is a member of the Audit and Remuneration Committees.
Adrian is CEO of Receipt Bank, a high growth global Fintech business backed by Insight Ventures. Until 2018, he was Global Chief Operating Officer at Just Eat plc, where he was responsible for all commercial operations in the UK and in 12 international markets. Over seven years, he was instrumental in building Just Eat into one of the most successful technology companies in Europe. Adrian was part of the team that led Just Eat through its listing on the London Stock Exchange in 2014, since when the company has created c.£1billion of shareholder value per year, culminating in its promotion to the FTSE 100 in December 2017.
Adrian joined Just Eat from Spotify, where as Director of European Business Development his team forged pioneering partnerships between the music streaming and mobile device industries. Prior to that, he spent six years at Google Inc. in a number of senior commercial roles across California and London, including Head of eCommerce Partnerships, where his team helped thousands of businesses improve their ROI from AdWords. Before that, Adrian was Head of Business Development at Ask Jeeves Inc., where he developed a network of more than 10,000 affiliate websites, helping Ask to become a household name in the UK prior to its $1.85 billion sale to IAC.
Dr Stephanie
Caspar
Non-Executive
Director
Stephanie joined the Board in July 2020 as the Axel Springer board member. She joined Axel Springer in 2013. While she initially served as Managing Director of WELT Group, her responsibilities expanded over the course of the following years. In March 2018 Stephanie was appointed member of the Executive Board at Axel Springer. In her capacity as President News Media & Marketplaces she is responsible for Axel Springer's company-wide technology and data strategy as well as Axel Springer's media brands in Germany (BILD / WELT etc.), including advertising sales, distribution and printing business.
She also assumed presidency on the board level for Idealo and the AVIV Group. The AVIV Group is one of the world's biggest digital classified players, combining Axel Springer's digital activities and participations in real estate, car and generalist classifieds.
Stephanie studied business administration at the University of Lüneburg. She began her career as a business consultant at McKinsey, followed by various roles at Ebay, Director Strategy among others, and an engagement at Immobilienscout24 as member of the Managing Board. In 2009, she founded digital retailer
Mirapodo together with the Otto Group and acted as the company's CEO.
24 Purplebricks Annual Report and Accounts 2020
Governance
CORPORATE GOVERNANCE STATEMENT
CORPORATE GOVERNANCE STATEMENT
Chairman's introduction
While the Company has experienced a period of significant challenge and change this year, we remain committed to achieving high standards of corporate governance, integrity and business ethics in all our business operations.
The Board continues to apply the 2018 Quoted Companies Alliance Corporate Governance Code (the "QCA Code") as the basis of the group's governance framework. The directors acknowledge the role of the 10 principles set out in the QCA Code, and their importance in focusing on the pursuit of medium to long-term value for shareholders without stifling the entrepreneurial spirit in which the Company was created.
The Group's arrangements for compliance with the QCA Code are set out below, as are the activities of our Board Committees, our remuneration policy and our commitment to equality, diversity, the environment and acting responsibly in all areas of our business.
Paul Pindar, Chairman
Compliance with the QCA Code
The Company is committed to complying with the QCA Code or providing a clear explanation of any areas in which the Company's governance structures and practices differ from the expectations set by the QCA Code. Information regarding the Company's compliance with the 10 principles of the QCA code is set out on our investor website purplebricksplc.com.
The Company's control environment has developed as the business has grown over the last six years. The effectiveness of the control environment is monitored as the business evolves, including in respect of governance regulations that affect our operations in Canada. Following the audit by HMRC of our Customer Due Diligence (CDD) processes and subsequent fine, the Company has made significant improvements to its CDD processes and invested in an expanded internal Compliance team, with further investment to be made in the next financial year. After the departures of certain members of the group finance team prior to the year end, the level of precision of review performed on some of the key areas of judgement was not consistently at the level we would expect. While this represented a weakening of the control environment during this period, we note that this did not have any impact on the accuracy of any of the judgements taken in these financial statements. This year we will be expanding the capacity of the group finance team to enable a robust assessment of judgement areas to be performed and to strengthen the internal control environment more widely. The Board is committed to continuous monitoring of the effectiveness of this environment, and to make further investments where required to target a best practice control environment.
Attendance at Board meetings
During the year the Board held 10 scheduled meetings. Attendance of the Board directors is recorded in the table below:
Attendance | |
Scheduled meetings | 10 |
Paul Pindar | 10 |
Michael Bruce 1 | 0 |
Vic Darvey | 10 |
James Davies 2 | 10 |
Mike Wroe 3 | 6 |
Adrian Blair | 9 |
Simon Downing | 7 |
Andreas Wiele 4 | 10 |
- Michael Bruce resigned his position of CEO on 7 May 2019.
- James Davies resigned his position as CFO after the year-end FY2020.
- Mike Wroe stepped down from the Board on 12 December 2019.
- Dr Andreas Wiele stepped down from the Board on 24 June 2020.
Board committees
In accordance with best practice, the Board has established an Audit Committee, a Remuneration Committee, and a Nomination Committee. The terms of reference for each committee are set out on our investor website purplebricksplc.com.
Audit Committee
The Audit Committee has been chaired by Paul Pindar since Mike Wroe stepped down from the Board in December 2019, and its other members are Simon Downing and Adrian Blair. The Committee meets twice per year and otherwise as required, and it has unrestricted access to the Company's auditor. A new Chair of the audit Committee is being sought during FY21.
The Audit Committee has primary responsibility for monitoring the quality of internal controls and ensuring that the financial performance of the Company is accurately measured and reported on. It receives and reviews reports from the Company's management relating to the interim and annual accounts and the accounting and internal control systems in use throughout the Company.
The Committee also reviews the content of the annual report and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
Purplebricks Annual Report and Accounts 2020 25
Governance
CORPORATE GOVERNANCE STATEMENT continued
Nomination Committee
The Nomination Committee is chaired by Adrian Blair, and its other member is Simon Downing. The Committee meets once a year and otherwise as required.
The Nomination Committee assists the Board in discharging its responsibilities relating to the composition of the Board, performance of Board members, induction of new directors, appointment of committee members and succession planning for senior management.
The Committee is responsible for evaluating the balance of skills, knowledge, diversity and experience on the Board, the size, structure and composition of the Board, retirements and appointments of additional and replacement directors, and makes appropriate recommendations to the Board on such matters. It also prepares a description of the role and capabilities required for a particular appointment.
Remuneration Committee
The Remuneration Committee is chaired by Simon Downing, and its other member is Adrian Blair. The Committee meets once a year and otherwise as required.
The Remuneration Committee reviews the performance of the executive directors and senior management and makes recommendations to the Board on matters relating to their remuneration and terms of employment. The Committee also makes recommendations to the Board on proposals for the granting of share options and other equity incentives pursuant to any share option scheme or equity incentive scheme in operation from time to time. The remuneration and terms and conditions of appointment of the non- executive directors of the Company are set by the Board.
The non-executive directors do not have any personal interest in the matters to be decided by the Remuneration Committee, or any potential conflicts of interest arising from cross-directorships or day-to-day involvement in the running of the Company. The executive directors and other senior personnel may be invited to attend meetings when appropriate to provide advice. However, no director will be present or will take part in discussions concerning their remuneration.
Details of the level and composition of the Directors' remuneration are disclosed in the Directors' remuneration report on page 32.
Research and development
The Group undertakes a continuous programme of development as part of its commitment to lead change in the real estate industry. Development expenditure is capitalised only when the end product is technically and commercially feasible and when sufficient resource is available to complete the development, as disclosed in note 2.17 to the financial statements. All other research and development expenditure is recognised in the statement of comprehensive income as an expense as disclosed in note 8 to the financial statements.
Directors' and officers' insurance provisions
The Company has a qualifying indemnity insurance policy in respect of directors' and officers' liability insurance policy, which covers directors and officers of the Company defending civil proceedings brought against them in their capacity as directors or officers of the Company.
Statement of directors' responsibilities
The directors are responsible for preparing the strategic report and directors' report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and Group for that period.
In preparing these financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Auditor
Deloitte LLP was re-appointed by shareholders as the Group's statutory auditor at the Company's Annual General Meeting in October 2019.
A resolution to reappoint Deloitte LLP will be proposed at the forthcoming Annual General Meeting.
26 Purplebricks Annual Report and Accounts 2020
Governance
CORPORATE GOVERNANCE STATEMENT continued
Corporate social responsibility
Equality, diversity, and human rights
Purplebricks Group plc maintains a strong commitment to equality and opportunity in our employment policies and practices in the workplace. Through our recruitment and selection processes we seek to attract and retain a diverse and talented workforce. As prescribed by law, we are clear that no existing or potential employee will receive less favourable treatment due to their race, creed, nationality, colour, ethnic origin, sexual orientation, gender, gender reassignment, marital status, membership of a trade union, disability, or any other criteria.
While the Company does not have a specific human rights policy, it does have statements on Equal Opportunities, Modern Slavery and Anti-bribery and Corruption that adhere to internationally agreed human rights principles. These statements are set out on our investor website purplebricksplc.com
Health and safety
The effective management of health and safety across our business is an integral part of our broader business administration requirements. As the business grows, we are committed to ensuring appropriate assessment and suitable control of the health and safety risks arising from our work activities for our employees, our customers and our partners.
Charitable and philanthropic activity
Giving back to the public and local communities in which we operate is an important part of the Company's culture and ethos. We do this through the commitment of time and resources, and through our employees' fundraising activities. They are active in raising money or supporting fundraising activities for a wide range of causes both locally and nationally.
Environment
Purplebricks Group plc is committed to minimising the environmental impact of its business operations and seeks to actively manage its carbon footprint. As an online business with extremely limited physical infrastructure and a marketing model that is largely paperless, the Company has a much- reduced environmental impact when compared to traditional real estate agencies.
As a relatively new and fast-growing company, we constantly review our business model and operations to limit the impact we and our customers make in the course of our business in areas such as energy efficiency, waste, recycling, emissions, transport and printing.
In line with current regulations, the Group is required to disclose its annual UK energy consumption and Greenhouse Gas (GHG) emissions from SECR regulated sources - see full disclosure below.
Further details can be found in our corporate responsibility section on pages 18-19.
UK energy consumption and Greenhouse Gas disclosure
The Companies Act 2006 (Strategic Report and Directors' Report) Regulation 2018 requires Purplebricks Group PLC to disclose annual UK energy consumption and Greenhouse Gas (GHG) emissions from SECR regulated sources. Energy and GHG emissions have been independently calculated by Envantage Ltd for the reporting period 1 May 2019 to 30 April 2020.
Reported energy and GHG emissions data is compliant with SECR requirements and has been calculated in accordance with the GHG Protocol and SECR guidelines. Energy and GHG emissions are reported from buildings and transport where operational control is held - this includes electricity, natural gas, and business travel in company-owned or grey-fleet vehicles. The table below details the regulated SECR energy and GHG emission sources for the current reporting period
1 May 2019 to 30 April 2020 and details a comparison against last year 1 May 2018 to 30 April 2019.
Purplebricks Annual Report and Accounts 2020 27
Governance
CORPORATE GOVERNANCE STATEMENT continued
2020 | 2019 | Change | ||
Energy (kWh) | ||||
Natural Gas | ||||
216,767 | 492,786 | (56)% | ||
Electricity | 505,149 | 422,344 | 19.6% | |
Transport | ||||
289,853 | 354,351 | (18.2)% | ||
Total Energy (kWh) | 1,011,769 | 1,269,481 | (20.3)% | |
Emissions (tCO2e) | ||||
Natural Gas | 39.9 | 90.6 | (56)% | |
Electricity - location-based | 129.1 | 108.0 | 19.6% | |
- market based | 95.2 | 78.4 | 21.6% | |
Transport | 69.3 | 84.8 | (18.2)% | |
Total SECR emissions1 | 238.3 | 283.3 | (15.9)% | |
Intensity metric | ||||
£m turnover | 83.1 | 88.5 | (6.1)% | |
tCO2e per £m turnover | 2.87 | 3.20 | (10.4)% |
1 location-based emissions only
Purplebricks is committed to reducing its environmental impact and contribution to climate change. During the reporting period, detailed building and transport energy audits were commissioned through Envantage Ltd to identify potential energy-saving opportunities.
While the opportunities identified are not significant, Purplebricks takes its impact on the environment seriously and has since identified an Energy Manager to review environmental initiatives as appropriate, beginning with the creation of an energy-saving action plan to identify areas of the business where energy can be saved and implement measures and strategies to achieve these savings.
Data records and methodology
Metered kWh consumption taken from supplier or landlord invoices is reported where possible. An exception to this is the energy consumption at Cranmore Drive, which has been calculated using manual meter readings. Where no data was available, energy consumption has been estimated against CIBSE industry benchmarks from CIBSE Guide F. Equivalent GHG emissions have been calculated using conversion factors published by BEIS in 2019 and reported using both location and market-based methods.
Transport emissions have been calculated based on mileage expense claim records, applying the average UK split between petrol and diesel vehicles to estimate relative fuel usage. Mileage per fuel type was converted into equivalent GHG emissions using the most recent emissions factors published by BEIS in 2019, and then divided by the gross Calorific Value to deduce kWh consumption.
28 Purplebricks Annual Report and Accounts 2020
Governance
DIRECTORS' REPORT
The directors present their annual report on the affairs of the Group, together with the financial statements and auditor's report for the year ended 30 April 2020.
The corporate governance statement set out on pages 25-28 forms part of this report.
Business Review
A comprehensive analysis of the Group's business, strategy, as well as future developments and outlook, is contained in the strategic report and Chief Executive's statement. The business review, details of the Group's performance and KPIs are set out in the Chief Executive's statement and Financial review. Principal risks and uncertainties are presented on pages 16 and 17.
Financial risk management objectives and policies
The Group uses financial instruments, comprising cash, invoice factoring and various items such as trade debtors and trade creditors that arise directly from operations. The main risks arising from the Group's financial instruments are liquidity risk, interest rate risk, credit risk and foreign currency risk. Detailed information regarding the Group's exposure to financial risks as well as the financial risk management strategy used to reduce these risks is set out in note 27 to the financial statements.
Going concern
In adopting a going concern basis for the preparation of the financial statements, the directors have made appropriate enquiries and have considered the Group's business activities, cash flows and liquidity position as set out on pages [8] and [9] and in note 27 to the financial statements, and the Group's principal risks and uncertainties as set out on pages [20] and [21].
The directors have taken into account reasonably possible future economic factors in preparing trading and cash flow forecasts covering the period to 31 August 2021. This assessment was carried out initially without taking account of the cash inflow arising from the sale of the Group's Canadian business, but did take into consideration sensitivity analysis with regard to the forecast volume of instructions, the variable nature of significant elements of the Group's cost base and steps which could be taken to further mitigate costs if required. Mitigations include a reduction in marketing expenditure and reductions in expenditure in the Group's contact centre and support functions.
In satisfying themselves that the going concern basis is appropriate, the directors also took into account recent practical experience and steps which were taken with regard to cost control and cash preservation due to the COVID-19- related macro-economic conditions leading up to and following the year-end. Even in the situation of a severe downside sensitised fall in revenues that is in excess of the directors' realistic expectations, and before taking any such mitigating actions, the Group expects to maintain a position of liquidity throughout the forecast period to 31 August 2021.
The subsequent cash inflow from the sale of the Group's Canadian business, of $61.5m Canadian Dollars (c.£36m), received on 17 July 2020 (subject to further post-closing adjustments, as referred to in note 31) has further enhanced the Group's year-end cash position of £31.0m.
Based on the Group's forecasts, the directors are satisfied that the Company, and the Group as a whole, have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the financial statements have been prepared on the going concern basis.
Post balance sheet events
On 15 July 2020 the Group completed the sale of its Canadian business, being all Canadian subsidiaries and the entire Canada segment, to the Desjardins Group, a Canadian cooperative financial group. Headline consideration was $60.5m Canadian Dollars (£35m) adjusted for working capital and debt, to be verified in line with completion accounts in due course. Part of the proceeds were allocated to the repayment of intra-Group debt owed to Purplebricks Group plc.
Engagement with customers and suppliers
For details of how the Group engages with customers and suppliers, please refer to the Section 172 statement on pages 21-22.
Research and development
During FY2020, the Group's development of its web-based IT platform continued to increase the services available to customers and support the work of our people at the centre and in the field. Total expenditure in the period recognised in the income statement was £3.5m with a further £2.1m capitalised (2019: expenditure of £3.5m and capitalisation of £2.6m).
Purplebricks Annual Report and Accounts 2020 29
Governance
DIRECTORS' REPORT continued
Dividend
No dividends were paid in the year and there are none recommended (FY 2019: £nil).
Political donations
In line with the Company's policy, neither the Company nor the Group made any political donations during the year.
Disclosure of information to auditor
The directors confirm that:
so far as each director is aware, there is no relevant audit information of which the Company's auditor is unaware; and
the directors have taken all the steps that they ought to have taken as directors to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
Employees
The Group's policy of providing employees with information about the Group continues and regular meetings are held between management and employees to allow exchanges of information and ideas. As the Group grows, the Group continues to consider ways to encourage the further involvement of employees in the Group's performance.
The Group gives every consideration to applications for employment made by disabled persons where the requirements of the job may be adequately filled by a disabled person. Where existing employees become disabled, it is the Group's policy wherever practicable to provide continuing employment under similar terms and conditions, and to provide training, career development and promotion wherever appropriate.
Further details on employee engagement can be found in the corporate responsibility section on page 18-19.
Subsidiaries
Information about the subsidiaries is provided at note 18 to the financial statements.
Investor relations
Primary responsibility for effective communication with shareholders lies with the Chairman, while the Board as a whole is committed to maintaining good communications with the market based on the mutual understanding of objectives of the Group.
The Chairman, Chief Executive Officer and Chief Financial Officer engage in regular dialogue with institutional shareholders to develop an understanding of their views. This is communicated back to, and discussed with, the Board. The Investor Relations function also provides regular reports to the Board on related matters, issues of concern to investors, and analysts' views and opinions. The Company endeavours to answer all queries raised by shareholders promptly.
Presentations given to analysts and investors covering the annual and half year results, along with all results and other regulatory announcements as well as further information for investors, are included on the investor relations section of the Company's website at www.purplebricksplc.com. Additional shareholder information is also set out on page 94.
Shareholders are able to contact the Company through the Company Secretary or Investor Relations. Simon Downing, our Senior Independent Director, serves as an additional point of contact for shareholders should they feel that any concerns are not being addressed properly through the normal channels. He may be contacted through the Company Secretary.
Shareholders are also encouraged to participate in the Company's Annual General Meeting, at which the Chairman presents the key highlights of the Group's performance. The Board will be available at the 2020 Annual General Meeting to answer questions from shareholders.
Substantial shareholdings
At 6 July 2020, the Company had been notified in accordance with the Disclosure and Transparency Rules of the FCA, or was aware, that the following held, or were beneficially interested in, 3% or more of the voting rights in the Company's shares at that date:
Shareholder name | Number of shares | % shareholding |
Axel Springer SE | 81,384,638 | 26.53% |
Jupiter Asset Management | 50,409,958 | 16.43% |
JNE Partners | 22,620,000 | 7.37% |
Seneca Investment Managers | 18,227,367 | 5.94% |
Inflection Point | 14,670,000 | 4.78% |
Hargreaves Lansdown Asset Management | 12,363,475 | 4.03% |
Paul & Sharon Pindar | 10,827,227 | 3.53% |
30 Purplebricks Annual Report and Accounts 2020
Governance
DIRECTORS' REPORT continued
Directors' remuneration report
The Remuneration Committee sets the overall policy on remuneration and other terms of employment of directors.
The Committee aims to ensure the remuneration package of the executive directors should be sufficiently competitive to attract, retain and motivate directors of the right calibre to achieve the Company's objectives without making excessive payments. In 2019, following the appointment of a new Chief Executive Officer, the Remuneration Committee put in place a remuneration plan for the executive team comprising a fixed salary, a variable annual bonus based on achieving certain short-term targets, and a long-term share options scheme linked to performance targets over a three-year period (the Performance Share Plan ("PSP")). The provisions of the plan incorporate longer-term objectives to ensure the executive team is incentivised to maximise profitability and shareholder return. Details of executive directors' remuneration and awards under the share option schemes are detailed below.
Remuneration for non-executive directors consists of fees for their services in connection with Board and committee meetings. Dr Andreas Wiele, the Axel Springer Board member for the year under review, did not receive a fee for his services.
Basic salary and benefits
Base salaries or fees for each Director are reviewed annually by the Remuneration Committee, and adjusted where appropriate to reflect individual performance, changed responsibilities, market conditions and information from independent sources on rates of salaries for similar roles and responsibilities.
Annual bonus
The Company operates a short-term bonus scheme to incentivise executive directors to meet the financial and strategic objectives of the business. During the financial year ended 30 April 2020, a total bonus of £100,000 (2019: £nil) was awarded to the directors.
Pension
During the year, pension contributions of £12,000 (2019: £2,000) were paid to Executive Directors. This is detailed in the table of Directors' pay below as post employment benefits.
Political donations
In line with the Company's policy, neither the Company nor the Group made any political donations during the year.
Taxable benefits
The Directors' taxable benefits are detailed in the table below.
Service contracts and letters of appointment
The Company's policy is for all of the Executive directors to have 12-month rolling service contracts. All non-executive directors are salaried. They are not eligible for bonuses, pension benefits, share options or other benefits, save where compulsory by law. The directors are indemnified to the full extent permitted by statute. Executive and non-executive directors' remuneration is detailed below and in note 9 to the financial statements.
Company policy on external appointments
The Company recognises that its directors are likely to be invited to become non-executive directors of other companies and that exposure to such non-executive duties can broaden their experience and knowledge, which will benefit the Group. Executive directors are therefore, subject to the approval of the Company's Board, allowed to accept non-executive appointments, as long as these are not with competing companies and are not likely to lead to conflicts of interest. Executive directors are allowed to retain the fees paid.
Share options
The Remuneration Committee is responsible for awarding options over ordinary shares to executive directors and certain senior managers under the employee and licensee share option schemes (CSOP) and Performance Share Plan (PSP). Following a review of executive director and senior team incentives by the Remuneration Committee, a new long-term incentive plan, Performance Share Plan (PSP), linked to longer-term performance metrics, was introduced in July
2019. The PSP is intended to offer long-term incentives to directors and senior management as the Remuneration Committee believes that the potential for share ownership and participation in the growing value of the Company increases the commitment and loyalty of directors and employees.
The vesting of awards made in FY2020 will depend on performance measured over a three-year period to 30 April 2022, with 50% of the vesting subject to achievement of an EBITDA target and 50% to a Total Shareholder Return (TSR) target. These targets are summarised below.
- TSR - measured as relative TSR against FTSE AIM 100 constituents. Vesting range of full vesting for upper quartile performance, and threshold vesting (25% of award) vesting for median, with straightline vesting between threshold and maximum. TSR is measured for three years from the date of award and using a three-month averaging period at both the beginning and end of the period
- EBITDA - measured as adjusted Group EBITDA in FY2022. 25% of awards vest for achieving threshold performance, with straightline vesting between threshold and maximum.
Purplebricks Annual Report and Accounts 2020 31
Governance
DIRECTORS' REPORT continued
Prior to the introduction of the PSP, the Company operated traditional employee and licensee share option schemes (CSOP). The vesting conditions for CSOP are based on future service from the date of grant, with between 25% and 33% of the options vesting on or after either the 12 or 24 month anniversary of the grant, and further options vesting every three months thereafter, so that options vest in full on the 48-month anniversary of the date of grant to the employee or the licensee. Some use of CSOP may continue to be made for employees below board-level.
Details of the options to purchase ordinary shares in the Company granted to the executive directors are set out below. Details of share- based payments are below and included in note 10 to the financial statements.
Directors' share options | Options | Options | Outstanding | |||
Outstanding | granted | exercised | interest | |||
Share option | Vesting | Interestat | during | during | at 30 April | |
Director | scheme | period | 1 May2019 | the year | the year | 2020 |
Vic Darvey | CSOP | 4 years | 700,000 | - | - | 700,000 |
PSP | 3 years | - | 1,050,000 | - | 1,050,000 | |
James Davies1 | CSOP | 4 years | 1,500,000 | - | - | 1,500,000 |
PSP | 3 years | - | 500,000 | - | 500,000 |
1 As announced on 17 April 2020, James Davies resigned as CFO following the end of the financial year. Accordingly, the share awards held by James Davies and shown above have now lapsed.
Directors' emoluments
The figures below represent emoluments earned by directors during the relevant financial year and relate to the period of each director's membership of the Board. Benefits incorporate all benefits assessable to tax arising from employment by the Group.
Salary or | Post | |||
fees and | employment | |||
Year ended 30 April 2020 | benefits | Bonus | benefits | Total |
£'000 | £'000 | £'000 | £'000 | |
Executive directors | ||||
Michael Bruce | 217 | - | - | 217 |
Vic Darvey | 346 | - | 10 | 356 |
James Davies | 250 | 100 | - | 350 |
Non-executive directors | ||||
Paul Pindar | 103 | - | - | 103 |
Adrian Blair | 54 | - | 1 | 55 |
Simon Downing | 54 | - | - | 54 |
Michael Wroe | 38 | - | - | 39 |
1,062 | 100 | 11 | 1,173 | |
Michael Bruce stepped down from his role as an executive director of the Group on 7 May 2019 and received a one-off payment of £200,000 which is reflected in costs for the year ended 30 April 2020. Michael Wroe stepped down from his role as non-executive director on 12 December 2019.
No director exercised share options during the year.
The table does not include the IFRS2 charges in respect of directors' options. Full details of directors' emoluments and IFRS2 charges are contained in note 9.
Andy Botha was appointed as Chief Financial Officer on 11 May 2020. Mr Botha's base salary in FY2021 will be £300,000 and he will receive a 3% of base salary annual pension contribution. Mr Botha will also participate in the Company's annual bonus plan and LTIP in FY2021.
On his departure from the Company, Mr Davies' outstanding share awards lapsed in full. As his departure was after the year end Mr Davies' IFRS2 credit will be recognised in FY 2021. Pursuant to the terms of Mr Davies' service agreement, he was paid base salary while serving notice with the company until 31 July 2020.
32 Purplebricks Annual Report and Accounts 2020
Governance
DIRECTORS' REPORT continued
Directors and directors' interests
The directors who held office during the financial year ending 30 April 2020 and up to the time of signing are set out below:
Adrian Blair1
Andy Botha (appointed 11 May 2020)
Michael Bruce (resigned 7 May 2019)
Stephanie Caspar1 (appointed 27 July 2020)
Vic Darvey (appointed 7 May 2019)
James Davies (resigned 11 May 2020)
Simon Downing1
Paul Pindar1
Andreas Wiele1 (resigned 24 June 2020)
Michael Wroe1 (resigned 12 December 2019)
1 Denotes non-executive director
Directors' shareholding
The interest of the directors in the shares of the Company are set out below:
30 April 2020 | 30 April 2019 | ||||
Shares | Options | Shares | Options | ||
Vic Darvey | - | 1,750,000 | - | 700,000 | |
James Davies1 | - | 2,000,000 | - | 1,500,000 | |
Adrian Blair2 | 33,675 | - | 33,675 | - | |
Simon Downing 2 | 133,500 | - | 133,500 | - | |
Paul Pindar 3 | 10,827,227 | - | 10,827,227 | - | |
Michael Bruce 4 | - | - | 33,386,072 | 2,430,551 |
- James Davies resigned as director on 11 May 2020 and his outstanding share awards lapsed in full
- Denotes non-executive directors
- Paul Pindar's shareholding includes those of his wife Sharon Pindar
- Michael Bruce resigned as director on 7 May 2019. His shareholding included those of his wife Isabel Bruce
This directors' report was approved and signed on behalf of the Board.
Vic Darvey Chief Executive Officer | Andy Botha Chief Financial Officer |
31 July 2020 | 31 July 2020 |
1 Denotes non-executive Director
Purplebricks Annual Report and Accounts 2020 33
Financial Statements
INDEPENDENT AUDITOR'S REPORT
Independent auditor's report to the members of Purplebricks Group plc
Report on the audit of the financial statements
OPINION
In our opinion:
- the financial statements of Purplebricks Group plc (the 'parent company') and its subsidiaries (the 'group') give a true and fair view of the state of the group's and of the parent company's affairs as at 30 April 2020 and of the group's loss for the year then ended;
- the group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union;
- the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
- the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
- the consolidated statement of comprehensive income;
- the consolidated and parent company balance sheets;
- the consolidated and parent company statements of changes in equity;
- the consolidated and parent company cash flow statement; and
- the related notes 1 to 31.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council's (the 'FRC's') Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
34 Purplebricks Annual Report and Accounts 2020
Financial Statements
INDEPENDENT AUDITOR'S REPORT continued
SUMMARY OF OUR AUDIT APPROACH
Key audit matters
Materiality
Scoping
Significant changes in our approach
The key audit matters that we identified in the current year were:
- Valuation of deferred income for the UK component
- Valuation of goodwill in relation to Canada
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
The materiality that we used for the group financial statements was £1.7 million, which was determined on the basis of 1.5% of group revenue from total operations.
The group audit team performed a full scope audit of the parent company and Canada component and an audit of specified account balances for the discontinued operations in the US and Australia in the year.
The overall scope of our audit resulted in us performing audit procedures over 99% of group revenue, 90% of group expenditure, (including trading losses from joint ventures), and 99% of group net assets.
As a result of the recent and ongoing global pandemic, Covid-19 has led to uncertainty around consumer behaviours and the future economic activity of consumers. We recognise that this has led to increased judgement around the future activity levels in the housing market and the Purplebricks business.
Consequently, we have included a new key audit matter and identified an associated significant risk associated to the valuation of goodwill in relation to the Canadian business.
Due to Purplebricks also making the decision in the year to close operations in both the US and Australia, the group audit team completed the audit of the current year income and expenditure associated with discontinued operations disclosures. In the prior year, component auditors completed the audit of specified account balances for the Australian business and the group audit team completed the audit of specified account balances for the US.
CONCLUSIONS RELATING TO GOING CONCERN
We are required by ISAs (UK) to report in respect of the following matters where:
- the directors' use of the going concern basis of accounting in preparation of the financial statements is not appropriate; or
- the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group's or the parent company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.
We have nothing to report in respect of these matters.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Last year our report contained two key audit matters which are not included in our report this year: accounting for the acquisition of DuProprio, and impairment of investments and intercompany receivables held by the parent company. We have assessed each of these items during the course of the audit, and concluded that these were not key audit matters in the current period. In addition, the key audit matter for the valuation of deferred income has been revised to only focus on the UK component following the closure of Australian business in the year.
Purplebricks Annual Report and Accounts 2020 35
Financial Statements
INDEPENDENT AUDITOR'S REPORT continued
Valuation of deferred income for the UK component
Key audit
matter description
In applying IFRS 15, the group have concluded that instruction revenues must be spread over the average period taken to sell a property. Accounting estimates are used to determine this average sales period. This is calculated based on the expected period of time from instruction to completion of a sale, using data from instructions received in the first 6 months of the current year; and is adjusted for any outliers in that population (such as properties listed for more than 12 months, or properties where Purplebricks were instructed but the property has not yet been published on the website).
In calculating the deferred income as at 30 April 2020, the group have extended the period over which revenue is recognised to reflect the uncertainty in the UK housing market at the balance sheet date due to Covid-19. This has extended the average period over which services are provided, and hence revenue is recognised, by 35% compared to the prior year, which has resulted in higher proportion of revenue from open instructions being deferred.
As detailed in note 2.5, instruction revenue in the UK is recognised using an output method over time, being the period from instruction to sale of the property on a straight line basis.
Judgement has been used to determine the period over which to recognise instruction revenue, which has been disclosed as a key source of estimation uncertainty in note 3.3 to the financial statements. The performance measure over which revenue is recognised is based on the expected time taken from instruction of a new property until the point at which a sale completes. This expectation is set with reference to historical experience, and the increased uncertainty of the performance of the UK housing market as at 30 April 2020 due to Covid-19. All UK property sales were postponed between 26 March 2020 and 13 May 2020 due to restrictions put in place by the UK Government in response to the pandemic, which has impacted the expected average time from instruction to completion for a transaction compared to the prior period. The impact of Covid-19 has increased the risk we have identified in relation to this key audit matter, as there is increased estimation uncertainty over the average time taken from instruction to completion compared to the prior year.
The measure of performance used has been determined on a portfolio basis, using the average time taken for a property sale to complete, which is described in the accounting policies section in pages 48 to 59.
How the scope of our audit responded to the key audit matter
Our procedures involved:
- testing the key IT controls over key systems used to retain sales information and management review controls over the review of the deferred revenue calculation. We identified that the management review controls in relation to the review of the calculation of the deferred revenue balance were not sufficiently precise for us to be able to rely on these controls as part of our audit;
- assessing the appropriateness of management's consideration of the impact of Covid-19 in determining the expected average period for properties to sell, comparing this to market data and to the business's performance post year end;
- using internal data analytics specialists who analysed the underlying data used to calculate the average period taken to sell a property in the UK and developed an independent expectation of the value of deferred income; and
- assessed the appropriateness of the disclosures made regarding the level of estimation uncertainty in relation to the average days service used to calculate the value of deferred revenue
Key observations Based on our work we are satisfied that the accounting for deferred income is in line with accounting standards and is materially appropriate.
36 Purplebricks Annual Report and Accounts 2020
Financial Statements
INDEPENDENT AUDITOR'S REPORT continued
Valuation of goodwill in relation to Canada
Key audit
matter description
As part of the business combination accounting in respect of the acquisition of the Canadian component, which took place in 2018, the group held goodwill of £16.9m on the group balance sheet at 30 April 2020. Assessment of the recoverable amount, being the higher of fair value less costs of disposal and value-in-use, requires judgement around future revenue and cashflows of the CGU. The key assumptions in calculating the value-in-use are forecasted growth in the number of instructions, growth in average revenue per instruction, improvements in gross margins, long term growth rate and the discount rate to be applied.
Following the outbreak of Covid-19 in March 2020 there has been significant operational disruption which presents a threat for many businesses. This has had a knock-on impact on the housing market in Canada which resulted in a decline in revenues and significant uncertainty as to when, of if, activity levels will return to pre-Covid levels.
This resulted in increased estimation uncertainty in the assessment of the value- in-use of the Canadian business at the annual impairment testing date of 30 April 2020. Management have disclosed the estimates used to determine the value in use in note 18 to the financial statements.
Subsequent to the year end, as disclosed in note 31, the group reached an agreement to sell the Canadian business for £35m. This further supports the conclusion that no impairment should be recognised in the financial statements as at 30 April 2020.
How the scope of our audit responded to the key audit matter
Our procedures involved:
- obtaining an understanding of the key controls over the group's forecasting process and goodwill impairment review. We identified that the management review controls in relation to the review of the value- in- use calculation in the annual testing of goodwill were not sufficiently precise for us to be able to rely on these controls;
- working with our valuation specialists to assess and challenge the discount rates used by management against appropriate valuation methodology;
- evaluating and challenging the Canadian CGU's cash flow forecasts based on historical forecasting accuracy and external data (i.e. market growth reports) to substantiate management's growth forecasts, in particular considering each of the key assumptions noted above;
- assessing the formulaic and mechanical accuracy of management's impairment model;
- assessing the sensitivity of the Canada CGU to key inputs and reviewing the impairment disclosures against the requirements of IAS 36 - Impairment of Assets; and.
- considering the additional evidence gained from the sale of the Canadian business on 15 July 2020.
Key observations Based on the work performed, we concur with the directors' conclusions that the carrying value of goodwill is appropriate.
Purplebricks Annual Report and Accounts 2020 37
Financial Statements
INDEPENDENT AUDITOR'S REPORT continued
OUR APPLICATION OF MATERIALITY
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements | Parent company financial statements | |
Materiality | ||
£1.7 million (2019: £2.0 million) | £1.4 million (2019: £1.6 million) | |
Basis for | We set materiality for the current year at | The materiality for the Purplebricks Group plc (the |
determining | 1.5% of group revenue from total operations | parent company) audit was capped at 80% (2019: |
materiality | (2019: 1.5% of revenue). | 78%) of group materiality on the basis of the relative |
size of this component to the group as a whole. This | ||
represents 1.7% (2019: 1.8%) of revenues generated by | ||
the company. | ||
Rationale for | We consider revenue to be the most appropriate | The UK business is the largest trading component |
the benchmark | benchmark. The group remains loss making and | of the group. Consistent with our group approach |
applied | therefore revenue was considered to be the most | to materiality, we consider revenue to be the |
representative benchmark to use. The directors also | most appropriate benchmark due to the low | |
deem revenue growth to be one of their key | levels of reported profits for the company in the | |
indicator when assessing the performance of the | period. The directors also deem revenue growth | |
group. | to be their key indicator when assessing the | |
performance of the company and the | ||
components of the group. | ||
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Group performance materiality was set at 60% of group materiality for the 2020 audit (2019: 60%). In determining performance materiality, we considered the following factors:
- the quality of the control environment and our ability to rely on certain IT controls over the completeness and accuracy of revenue as well as our inability to rely on manual review controls;
- the impact of the closure of activities in the US and Australia in the period; and
- the level of uncorrected audit adjustments identified in the audit for the year ended 30 April 2019.
We have reported to the Audit Committee all audit differences in excess of £85,000 (2019: £101,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls, and assessing the risks of material misstatement at the group level. Based on that assessment, we focused our group audit scope on the consolidation at the parent company level (it being the main trading business in the UK) and the group's overseas business segments in the US, Australia and Canada.
Canada
The Canadian component accounts for 26% of the group's revenue and was subject to a full scope audit using a component materiality of £1.0 million (2019: £1.1 million). The component auditor in Canada, who was directed and supervised by the group audit team, performed the audit of the Canada component.
Australia and US
The Australian and US components in aggregate account for 5% of the total revenue from continuing and discontinued operations and were subject to specified audit procedures performed by the group audit team using a component materiality of £0.6 million (2019: £0.8 million). As these businesses were discontinued in the current financial year, the group audit team performed specified audit procedures around account balances in the period of wind-down of operations, associated closure costs and the related disclosures within the financial statements.
38 Purplebricks Annual Report and Accounts 2020
Financial Statements
INDEPENDENT AUDITOR'S REPORT continued
Parent company and consolidation
The parent company accounts for over 68% of the group's revenue and was subject to a full scope audit using component materiality of £1.4 million, which was performed by the group audit team. At the parent company level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there were no significant risks of material misstatement in the aggregated financial information of the remaining components not subject to audit or audit of specified account balances.
Overall assessment of the group audit scope
The overall scope of our audit resulted in us performing audit procedures over 99% of group revenue, 90% of group expenditure, (including trading losses from joint ventrues), and 99% of group net assets.
As a business, Purplebricks Group plc is extremely reliant on technology. Therefore effective technology controls are important not just to address financial risks, but also for other areas such as operational, regulatory and reputational risk. Given the high volume, low value nature of the group's transactions, reliance on the IT control environment is a fundamental part of the audit approach.
We relied on certain IT controls over instruction revenue for the UK component. Our assessment of the UK IT control environment included general IT controls (such as user access and IT change management) and automated controls (such as appropriate configuration of tariffs) only in relation to systems which impacted revenue recognition for the UK component.
Overall, whilst key general IT controls have been working effectively across the in-scope financial systems, we identified:
- Exceptions in general IT controls on financial reporting systems; and
- Opportunities to strengthen the control environment through implementing controls in line with documented policy requirements.
Management have provided sufficient mitigating evidence and/or performed adequate mitigating procedures to address the identified IT risks for the purposes of the financial statement audit.
We have performed a fully substantive audit over all other areas of the financial statements and for instruction revenue for all other components as we were unable to rely on controls as we have not been able to obtain detailed evidence of the controls occurring in the period or found that the controls do not fully address our identified risk of material misstatement.
Due to Covid-19 related travel restrictions, the group audit team were unable to visit the Canadian component. However, we included the component audit team in our team briefing, discussed their risk assessment, reviewed documentation of the findings from their work, held regular discussions in advance of and throughout the audit and joined the component audit close meeting.
OTHER INFORMATION
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in respect of these matters.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group's and the parent company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
Purplebricks Annual Report and Accounts 2020 39
Financial Statements
INDEPENDENT AUDITOR'S REPORT continued
AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org. uk/auditorsresponsibilities.This description forms part of our auditor's report.
Report on other legal and regulatory requirements
OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion, based on the work undertaken in the course of the audit:
- the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
- the strategic report and the directors' report have been prepared in accordance with applicable legal requirements..
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified any material misstatements in the strategic report or the directors' report.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
- we have not received all the information and explanations we require for our audit; or
- adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
- the parent company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors' remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors' remuneration have not been made.
We have nothing to report in respect of these matters.
USE OF OUR REPORT
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Andrew Halls FCA (Senior statutory auditor) For and on behalf of Deloitte LLP Statutory Auditor
Birmingham, UK 31 July 2020
40 Purplebricks Annual Report and Accounts 2020
Financial Statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 APRIL 2020
2020 | 2019 | ||
Note | £m | £m | |
Revenue | 6 | 111.1 | 113.8 |
Cost of Sales | (43.4) | (44.4) | |
Gross profit | 67.7 | 69.4 | |
Administrative and establishment expenses | (45.5) | (36.3) | |
Marketing costs | (28.8) | (34.1) | |
Share of results of joint venture | 19 | (2.8) | (0.5) |
Operating loss | 8 | (9.4) | (1.5) |
Finance income | 13 | 0.5 | 0.8 |
Finance expense | 14 | (4.3) | (4.2) |
Loss on ordinary activities before taxation | (13.2) | (4.9) | |
Taxation on loss on ordinary activities | 11 | 1.7 | 1.3 |
Loss from continuing operations | (11.5) | (3.6) | |
Loss from discontinued operations | 7 | (7.7) | (51.3) |
Loss for the year | (19.2) | (54.9) | |
Items that may be reclassified subsequently to profit and loss: | |||
Exchange differences on translation of foreign operations | (0.1) | (0.1) | |
Total other comprehensive income | (0.1) | (0.1) | |
Total comprehensive loss | (19.3) | (55.0) | |
Earnings per share | |||
From continuing operations | |||
Basic and diluted loss per share | 12 | (4)p | (1)p |
Total including discontinued operations | |||
Basic and diluted loss per share | 12 | (6)p | (18)p |
The accompanying accounting policies and notes form an integral part of these financial statements.
Comparatives have been restated to show separately the results of continuing and discontinued operations - see note 2.2
Comparative figures have not been restated for the adoption of IFRS 16 at 1 May 2019 - see note 2.
All losses and other comprehensive income are attributable to equity shareholders of the parent.
Purplebricks Annual Report and Accounts 2020 41
Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 30 APRIL 2020
2020 | Restated1 | ||
2019 | |||
Note | £m | £m | |
Non-current assets | |||
Goodwill | 15 | 19.5 | 19.5 |
Intangible assets | 16 | 19.2 | 21.9 |
Property, plant and equipment | 17 | 3.5 | 2.0 |
Investment in joint venture | 19 | 12.5 | 10.7 |
Deferred tax asset | 11 | 9.0 | 7.1 |
63.7 | 61.2 | ||
Current assets | |||
Tax receivable | 0.1 | 1.2 | |
Trade and other receivables | 20 | 10.2 | 11.4 |
Contract assets - accrued income | 20 | 5.3 | 9.7 |
Contract assets - prepaid cost of sales | 20 | 5.3 | 6.3 |
Cash and cash equivalents | 23 | 31.0 | 62.8 |
51.9 | 91.4 | ||
Total assets | 115.6 | 152.6 | |
Current liabilities | |||
Trade and other payables | 21 | (11.8) | (25.0) |
Contract liabilities - deferred income | 21 | (14.6) | (19.4) |
Provisions | 21 | (0.4) | - |
Borrowings | 21 | (0.1) | - |
Lease liabilities | 22 | (0.7) | - |
(27.6) | (44.4) | ||
Net current assets | 24.3 | 47.0 | |
Total assets less current liabilities | 88.0 | 108.2 | |
Non-current liabilities | |||
Borrowings | 21 | (0.1) | - |
Deferred tax liabilities | 11 | (4.4) | (4.5) |
Lease liabilities | 22 | (1.4) | - |
(5.9) | (4.5) | ||
Net assets | 82.1 | 103.7 | |
Equity | |||
Share capital | 24 | 3.1 | 3.0 |
Share premium | 25 | 177.4 | 177.4 |
Share-based payments reserve | 26 | 6.9 | 8.6 |
Foreign exchange reserve | 26 | (1.8) | (0.5) |
Retained earnings | (103.5) | (84.8) | |
Total equity | 82.1 | 103.7 | |
These financial statements were approved and authorised for issue by the Board of Directors on 31 July 2020 and were signed on its behalf by:
Vic Darvey Director | Andy Botha Director |
Company registration number 08047368 |
The accompanying accounting policies and notes form an integral part of these financial statements.
1 See note 20
42 Purplebricks Annual Report and Accounts 2020
Financial Statements
COMPANY STATEMENT OF FINANCIAL POSITION
AT 30 APRIL 2020
2020 | Restated1 | ||
2019 | |||
Note | £m | £m | |
Non-current assets | |||
Intangible assets | 16 | 3.6 | 4.4 |
Property, plant and equipment | 17 | 1.4 | 0.8 |
Investment in subsidiaries | 18 | 31.6 | 31.9 |
Investment in jointly controlled entities | 19 | 15.8 | 11.2 |
Amounts owed by group undertakings | 20 | 6.0 | - |
Deferred tax asset | 11 | 7.1 | 6.1 |
65.5 | 54.4 | ||
Current assets | |||
Tax receivable | - | 0.3 | |
Trade and other receivables | 20 | 5.5 | 5.4 |
Contract assets - accrued income | 20 | 5.3 | 8.2 |
Contract assets - prepaid cost of sales | 20 | 5.1 | 5.6 |
Cash and other cash equivalents | 23 | 28.0 | 57.6 |
43.9 | 77.1 | ||
Total assets | 109.4 | 131.5 | |
Current liabilities | |||
Trade and other payables | 21 | (8.1) | (13.5) |
Provisions | 21 | (0.4) | - |
Contract liabilities - deferred income | 21 | (13.0) | (14.7) |
Lease liabilities | 22 | (0.3) | - |
(21.8) | (28.2) | ||
Net current assets | 22.1 | 48.8 | |
Total assets less current liabilities | 87.6 | 103.3 | |
Non current liabilities | |||
Lease liabilities | 22 | (0.5) | - |
Net assets | 87.1 | 103.3 | |
Equity | |||
Share capital | 24 | 3.1 | 3.0 |
Share premium | 25 | 177.4 | 177.4 |
Share-based payments reserve | 26 | 6.9 | 8.6 |
Retained earnings | (100.3) | (85.7) | |
Total equity | 87.1 | 103.3 | |
The Company reported a loss for the financial year ended 30 April 2020 of £15.2m (2019: loss of £92.5m)
These financial statements were approved and authorised for issue by the Board of Directors on 31 July 2020 and were signed on its behalf by:
Vic Darvey Director | Andy Botha Director |
Company registration number 08047368
The accompanying accounting policies and notes form an integral part of these financial statements.
1 See note 20
Purplebricks Annual Report and Accounts 2020 43
Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 APRIL 2020
Share | Share | Share-based | Foreign | Retained | ||
payment | exchange | |||||
capital | premium | reserve | reserve | earnings | Total equity | |
£m | £m | £m | £m | £m | £m | |
At 1 May 2019 | 3.0 | 177.4 | 8.6 | (0.5) | (84.8) | 103.7 |
Exercise of options | 0.1 | - | (0.4) | - | 0.4 | 0.1 |
Tax in respect of share options | - | - | - | - | 0.2 | 0.2 |
Share-based payment charge | - | - | (1.3) | - | - | (1.3) |
Transactions with owners | ||||||
0.1 | - | (1.7) | - | 0.6 | (1.0) | |
Loss for the year | - | - | - | - | (19.3) | (19.3) |
Exchange differences on | - | - | - | (1.3) | - | (1.3) |
translation of foreign operators | ||||||
Total comprehensive loss | ||||||
- | - | - | (1.3) | (19.3) | (20.6) | |
At 30 April 2020 | ||||||
3.1 | 177.4 | 6.9 | (1.8) | (103.5) | 82.1 | |
FOR THE YEAR ENDED 30 APRIL 2019
Share | Share-based | Foreign | Retained | Total | ||
payment | exchange | |||||
Share capital | premium | reserve | reserve | earnings | equity | |
£m | £m | £m | £m | £m | £m | |
At 1 May 2018 | 3.0 | 176.4 | 4.6 | (0.4) | (33.4) | 150.2 |
Exercise of options | - | 1.0 | (0.3) | - | 0.3 | 1.0 |
Tax in respect of share options | - | - | - | - | 3.2 | 3.2 |
Share-based payment charge | - | - | 4.3 | - | - | 4.3 |
Transactions with owners | ||||||
- | 1.0 | 4.0 | - | 3.5 | 8.5 | |
Loss for the year | - | - | - | - | (54.9) | (54.9) |
Exchange differences on | - | - | - | (0.1) | - | (0.1) |
translation of foreign operators | ||||||
Total comprehensive loss | ||||||
- | - | - | (0.1) | (54.9) | (55.0) | |
At 30 April 2019 | ||||||
3.0 | 177.4 | 8.6 | (0.5) | (84.8) | 103.7 | |
44 Purplebricks Annual Report and Accounts 2020
Financial Statements
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 APRIL 2020
Share | Share | Share-based | Retained | Total | |
payment | |||||
capital | premium | reserve | earnings | equity | |
£m | £m | £m | £m | £m | |
At 1 May 2019 | 3.0 | 177.4 | 8.6 | (85.7) | 103.3 |
Exercise of options | 0.1 | - | (0.4) | 0.4 | 0.1 |
Tax in respect of share options | - | - | - | 0.2 | 0.2 |
Share-based payment credit | - | (1.3) | - | (1.3) | |
Transactions with owners | |||||
0.1 | - | (1.7) | 0.6 | (1.0) | |
Loss for the year | - | - | - | (15.2) | (15.2) |
Total comprehensive loss | - | - | - | (15.2) | (15.2) |
At 30 April 2020 | |||||
3.1 | 177.4 | 6.9 | (100.3) | 87.1 | |
FOR THE YEAR ENDED 30 APRIL 2019
Share | Share | Share-based | Retained | Total | |
payment | |||||
capital | premium | reserve | earnings | equity | |
£m | £m | £m | £m | £m | |
At 1 May 2018 | 3.0 | 176.4 | 4.6 | 3.3 | 187.3 |
Exercise of options | - | 1.0 | (0.3) | 0.2 | 0.9 |
Tax in respect of share options | - | - | - | 3.3 | 3.3 |
Share-based payment charge | - | - | 4.3 | - | 4.3 |
Transactions with owners | |||||
- | 1.0 | 4.0 | 3.5 | 8.5 | |
Loss for the year | - | - | - | (92.5) | (92.5) |
Total comprehensive loss | - | - | - | (92.5) | (92.5) |
At 30 April 2019 | |||||
3.0 | 177.4 | 8.6 | (85.7) | 103.3 | |
Purplebricks Annual Report and Accounts 2020 45
Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 APRIL 2020
2020 | 2019 | ||
Note | £m | £m | |
Loss for the year after taxation | (19.2) | (54.9) | |
Adjustments for: | |||
Amortisation of intangible assets | 16 | 4.1 | 3.7 |
Depreciation of tangible fixed assets | 17 | 1.7 | 0.8 |
Impairment of intangible assets | 16 | 0.5 | - |
Impairment of tangible fixed assets | 17 | 0.6 | - |
Share-based payment (credit) / charge | 10 | (1.3) | 4.3 |
Gain on lease modification | (0.1) | - | |
Credit to loss provision | 20 | (0.4) | - |
Increase in provisions | 21 | 0.4 | - |
Interest income | 13 | (0.5) | (0.8) |
Interest expense | 14 | 0.2 | 0.1 |
Share of result of joint venture | 2.8 | 0.5 | |
Taxation | 11 | (1.7) | (1.1) |
Operating cash outflow before changes in working capital | (12.9) | (47.4) | |
Movement in trade and other receivables | 7.0 | (6.6) | |
Movement in trade and other payables | (14.2) | 4.9 | |
Movement in deferred income | (4.8) | 1.1 | |
Cash utilised in operations | (24.9) | (48.0) | |
Taxation received / (paid) | 1.0 | (1.0) | |
Interest paid | (0.1) | (0.1) | |
Net cash outflow from operating activities | |||
(24.0) | (49.1) | ||
Investing activities | |||
Purchase of property, plant and equipment | 17 | (0.8) | (1.1) |
Development expenditure capitalised | 16 | (2.1) | (2.6) |
Purchase of intangible assets | 16 | (0.1) | (0.7) |
Interest income | 13 | 0.5 | 0.7 |
Investment in joint venture | 19 | (4.6) | (11.2) |
Acquisition of subsidiary net of cash acquired | - | (27.3) | |
Net cash outflow from investing activities | |||
(7.1) | (42.2) | ||
Financing activities | |||
Lease interest payments | 23 | (0.1) | - |
Payments against lease liabilities | 23 | (0.9) | - |
Proceeds from external borrowings | 23 | 0.3 | - |
Repayments of external borrowings | 23 | (0.1) | - |
Proceeds from issue of shares | 24 | 0.1 | 1.0 |
Net cash (outflow) / inflow from financing activities | |||
(0.7) | 1.0 | ||
Net decrease in cash and cash equivalents | (31.8) | (90.3) | |
Effect of foreign exchange rates | - | 0.3 | |
Cash and cash equivalents at beginning of year | 62.8 | 152.8 | |
Cash and cash equivalents at the end of the year | 31.0 | 62.8 | |
The accompanying accounting policies and notes form an integral part of these financial statements.
Cash flows relating to discontinued operations are presented within note 7
46 Purplebricks Annual Report and Accounts 2020
Financial Statements
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 APRIL 2020
2020 | Restated1 | ||
2019 | |||
Note | £m | £m | |
Loss for the year after taxation | (15.2) | (92.5) | |
Adjustments for: | |||
Amortisation of intangible assets | 16 | 2.4 | 1.9 |
Impairment of intangible assets | 16 | 0.5 | - |
Impairment of investments in subsidiaries and intercompany receivables | 18 | 8.9 | 96.9 |
Depreciation | 17 | 0.6 | 0.4 |
Share-based payment (credit) / charge | (0.1) | 2.8 | |
Credit to loss provision | 20 | (0.1) | - |
Increase in provisions | 21 | 0.4 | - |
Interest income | (0.7) | (0.7) | |
Interest expense | 0.1 | - | |
Fair value movement in respect of derivatives | - | (0.1) | |
Taxation | (0.7) | (0.2) | |
Operating cash (outflow) / inflow before changes in working capital | (3.9) | 8.5 | |
Movement in trade and other receivables | 2.0 | (3.3) | |
Movement in trade and other payables | (5.3) | 4.2 | |
Movement in deferred income | (1.7) | 1.2 | |
Cash outflow / (inflow) from operations | (8.9) | 10.6 | |
Taxation received | 0.2 | 0.2 | |
Interest paid | (0.1) | - | |
Net cash (outflow) / inflow from operating activities | |||
(8.8) | 10.8 | ||
Investing activities | |||
Purchase of property, plant and equipment | 17 | (0.3) | (0.5) |
Development expenditure capitalised | 16 | (2.1) | (2.6) |
Purchase of intangible assets | 16 | - | (0.1) |
Investment in subsidiaries | 18 | (4.6) | - |
Investment in jointly controlled entity | 19 | (4.6) | (11.2) |
Loans to subsidiaries | (9.8) | (59.3) | |
Interest income | 0.7 | 0.7 | |
Acquisition of subsidiary | - | (30.9) | |
Net cash outflow from investing activities | |||
(20.7) | (103.9) | ||
Financing activities | |||
Repayments against lease liabilities | 23 | (0.2) | - |
Proceeds from issue of shares | 24 | 0.1 | 1.0 |
Net cash (outflow) / inflow from financing activities | |||
(0.1) | 1.0 | ||
Net decrease in cash and cash equivalents | (29.6) | (92.1) | |
Cash and cash equivalents at beginning of year | 57.6 | 149.7 | |
Cash and cash equivalents at the end of the year | 28.0 | 57.6 | |
1 See note 2.2
Purplebricks Annual Report and Accounts 2020 47
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS
1. General information
Purplebricks Group plc (the Company) is a public company limited by shares which is listed on the Alternative Investment Market of the London Stock Exchange. The company is incorporated in the United Kingdom and registered in England and Wales. The address of the Company's registered office is Suite 7, First Floor, Cranmore Place, Cranmore Drive, Shirley, Solihull, West Midlands, B90 4RZ. The Company is primarily involved in the estate agency business.
2. Summary of significant accounting policies
2.1 BASIS OF PREPARATION AND CONSOLIDATION
The Group and Company financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS Standards). The financial statements have also been prepared in accordance with IFRS Standards adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.
The Company has taken advantage of section 408 of the Companies Act and not included its own income statement in these financial statements.
The consolidated financial statements have been prepared under the historical cost convention as modified by financial instruments recognised at fair value.
The consolidated financial statements incorporate the results and financial position of the Company and entities controlled by the Company (its subsidiaries) made up to 30 April each year. Control is achieved when the Company:
- has the power over the investee;
- is exposed, or has rights, to variable returns from its involvement with the investee; and
- has the ability to use its power to affects its returns.
- The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in profit or loss from the date the Company gains control until the date when the Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of the subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non- controlling interests having a deficit balance.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with the Group's accounting policies.
All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the Group are eliminated on consolidation.
Profit or loss and each component of other comprehensive income are attributable to the owners of the Company. Total comprehensive income of the subsidiaries is attributable to the owners of the Company.
Accounting policies of subsidiaries which differ from Group accounting policies are adjusted on consolidation. All intragroup transactions, balances, income and expenses are eliminated on consolidation.
2.2 RESTATEMENT
Discontinued operations
A discontinued operation is a component of the entity which the Group has decided to close, or which has been disposed of or which is classified as held for sale and which represents a separate major line of business or geographical area of operations. The results of discontinued operations are presented separately in the statement of comprehensive income and statement of cash flows. In 2020, the results of the US and Australian operations have been classified as discontinued operations. The comparative figures included in the statement of comprehensive Income and statement of cash flows in respect of the year ended 30 April 2019 have been restated accordingly.
Presentation of contract assets
In the current year, contract assets, being accrued income and prepaid cost of sales, are presented separately on the face of the statement of financial position. Comparative amounts have also been separately presented, with a corresponding reduction in the amounts shown as trade and other receivables. No restatement of total amounts has occurred. See note 20 for more detail.
48 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
2.3 GOING CONCERN
In adopting a going concern basis for the preparation of
the financial statements, the directors have made appropriate enquiries and have considered the Group's business activities, cash flows and liquidity position as set out on pages 6 and 7 and in note 27 to the financial statements, and the Group's principal risks and uncertainties as set out on pages 16 and 17.
The directors have taken into account reasonably
possible future economic factors in preparing trading and cash flow forecasts covering the period to 31 August 2021. This assessment was carried out initially without taking account of the cash inflow arising from the sale of the Group's Canadian business, but did take into consideration sensitivity analysis with regard to the forecast volume of instructions, the variable nature of significant elements of the Group's cost base and steps which could be taken to further mitigate costs if required. Mitigations include a reduction in
marketing expenditure and reductions in expenditure in the Group's contact centre and support functions.
In satisfying themselves that the going concern basis is appropriate, the directors also took into account recent practical experience and steps which were taken with regard to cost control and cash preservation due to the COVID-19- related macro-economic conditions leading up to and following the year-end. Even in the situation of a severe downside sensitised fall in revenues that is in excess of the directors' realistic expectations, and before taking any such mitigating actions, the Group expects to maintain a position of liquidity throughout the forecast period to 31 August 2021.
The subsequent cash inflow from the sale of the Group's Canadian business, of $61.5m Canadian Dollars (c.£36m), received on 17 July 2020 (subject to further post-closing adjustments, as referred to in note 31) has further enhanced the Group's year-end cash position of £31.0m.
Based on the Group's forecasts, the Directors are satisfied that the Company, and the Group as a whole, have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the financial statements have been prepared on the going concern basis.
2.4 NEW ACCOUNTING STANDARDS ADOPTED IN THE YEAR
2.4.1 Implementation of IFRS 16 Leases
The Group has adopted IFRS 16 Leases in these financial statements from 1 May 2019, using the modified retrospective approach.
IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to lessee accounting by removing the distinction between operating and finance lease, requiring the recognition of a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of low-value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged.
The Group is not party to any leases where it acts as a lessor.
Details of the Group's accounting policies under IFRS 16 are set out below, followed by a description of the impact of adopting IFRS 16.
Accounting policies under IFRS 16 Leases
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short- term leases (defined as leases with a lease term of 12 months or less) and leases of low-value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.
The lease liability is presented as a separate line in the consolidated statement of financial position and is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
- the lease term has changed, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
- a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
Purplebricks Annual Report and Accounts 2020 49
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
The right-of-use assets comprise the initial measurement of the corresponding lease liability, and any initial direct costs, less lease payments made at or before the commencement day. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. The depreciation starts at the commencement date of the lease. The Group does not have any leases that include purchase options or transfer ownership of the underlying asset.
The right-of-use assets are presented within the same line item as that within which the corresponding underlying assets would be presented if they were owned - for the Group this is property, plant and equipment.
For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as office equipment), the Group has opted to recognise a lease expense on a straight-line basis as permitted by paragraph 6 of IFRS 16. This expense is presented within administrative and establishment expenses in the statement of consolidated income.
Other costs associated with leases, such as maintenance and insurance, are expensed as incurred.
Approach to transition
The Group has applied IFRS 16 using the modified retrospective approach, without restatement of the comparative figures.
In respect of those leases the Group previously treated as operating leases, the Group has elected to measure its right-of- use assets arising from property leases using the approach set out in IFRS 16.C8(b)(i). Under IFRS 16.C8(b)(i) right-of-use assets are calculated as if IFRS 16 applied at the lease commencement date but discounted using the incremental borrowing rate at the date of initial application. The incremental borrowing rate represents the rate of interest that the Group would have had to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment, over a similar term, with similar security.
The Group's weighted average incremental borrowing rate applied to lease liabilities as at 1 May 2019 is 6.4%.
As a practical expedient, the Group has relied on the previous identification of leases under IAS 17 for all contracts that existed on the date of initial application.
Impact on lessee accounting
IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off- balance sheet.
Applying IFRS 16, for all leases (except as noted above), the Group now recognises right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of the future lease payments as described above.
Lease incentives (e.g. rent-free periods) are recognised as part of the measurement of the right-of-use assets and lease liabilities whereas under IAS 17 they resulted in the recognition of a lease incentive liability, amortised as a reduction of rental expenses on a straight-line basis.
Under IFRS 16, right-of-use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets. This replaces the previous requirement to recognise a provision for onerous lease contracts.
Under IFRS 16 the Group recognises depreciation of right-of- use assets and interest on lease liabilities in the consolidated income statement, whereas under IAS 17 operating leases previously gave rise to a straight-line expense in other operating expenses.
Under IFRS 16 the Group separates the total amount of cash paid for leases that are on consolidated statement of financial position into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated statement of cash flows. Under IAS 17, operating lease payments were presented as operating cash outflows.
Areas of judgement
Significant judgements applied in the adoption of IFRS 16 included determining the lease term for those leases with termination or extension options and determining an incremental borrowing rate where the rate implicit in a lease could not be readily determined.
Where the Group's leases include termination options, the right-of-use assets and lease liabilities assume these are not exercised. None of the leases in place at 1 May 2019 included extension options.
50 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
Financial impact
The application of IFRS 16 to leases previously classified as operating leases under IAS 17 resulted in the recognition of right-of-use assets and lease liabilities. Operating lease incentives previously recognised as liabilities have been derecognised and factored into the measurement of the right-to-use assets and lease liabilities.
The table below sets out the adjustments recognised at the date of initial application of IFRS 16.
GROUP | As previously reported at 30 April 2019 | Impact of IFRS 16 | As restated at 1 May 2019 |
£m | £m | £m | |
Non-current assets | |||
Property, plant and equipment | 2.0 | 2.2 | 4.2 |
Total impact on assets | 2.2 | ||
Current liabilities | |||
Trade and other payables | (25.0) | 0.1 | (24.9) |
Lease liabilities | - | (1.0) | (1.0) |
Non-current liabilities | |||
Lease liabilities | - | (1.3) | (1.3) |
Total impact on liabilities | |||
(2.2) | |||
Impact on retained earnings | |||
- | |||
Of the total right-of-use assets of £2.2m recognised at 1 May 2019, £2.1m related to leases of property and £0.1m to leases of other equipment.
The impact on trade and other payables relates to the previously recognised creditor in respect of rent-free periods.
COMPANY | As previously reported at 30 April 2019 | Impact of IFRS 16 | As restated at 1 May 2019 |
£m | £m | £m | |
Non-current assets | |||
Property, plant and equipment | 0.8 | 0.7 | 1.5 |
Deferred tax asset | 6.1 | - | 6.1 |
Total impact on assets | |||
0.7 | |||
Current liabilities | |||
Trade and other payables | (13.6) | 0.1 | (13.5) |
Lease liabilities | - | (0.3) | (0.3) |
Non-current liabilities | |||
Lease liabilities | - | (0.5) | (0.5) |
Total impact on liabilities | |||
(0.7) | |||
Impact on retained earnings | |||
- | |||
Purplebricks Annual Report and Accounts 2020 51
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
The table below presents a reconciliation from operating lease commitments disclosed at 30 April 2019 to lease liabilities recognised at 1 May 2019.
Group | Company | |
£m | £m | |
Operating lease commitments disclosed | 4.5 | 1.5 |
under IAS 17 at 30 April 2019 | ||
Short-term and low-value lease | (0.1) | - |
commitments straight-line expensed | ||
under IFRS 16 | ||
Effect of discounting | (0.3) | (0.1) |
Service charges included in 30 April 2019 | (1.8) | (0.5) |
lease commitments | ||
Lease liabilities recognised at 1 May 2019 | 2.3 | 0.9 |
Consolidated Income statement impact
The application of IFRS 16 resulted in a decrease in other operating expenses and an increase in depreciation and interest expense compared to IAS 17.
During the year, the group impaired right-of-use assets relating to leases held in the US and Australia of £0.6m
During the year ended 30 April 2020, in relation to leases under IFRS 16 the Group recognised the following amounts in the consolidated income statement:
Group | Company | |
£m | £m | |
Depreciation | 0.6 | 0.3 |
Impairment of right-of-use assets | ||
0.6 | - | |
Interest expense | 0.1 | - |
short-term and low-value lease expense | 0.1 | - |
Under IAS 17, the equivalent amounts would have been | ||
£m | £m | |
Depreciation | - | - |
Interest expense | - | - |
Lease expense | 0.9 | 0.3 |
Cash flow statement impact
Cash flows related to repayment of interest are presented within operating cash flows. Cash flows related to repayment of lease liabilities are presented within financing cash flows.
Total cash outflows under leases were £1.0m.
Previously, all cash flows relating to the Group's lease portfolio were presented within operating cash flows.
52 Purplebricks Annual Report and Accounts 2020
Consolidated statement of financial position impact
The table below presents a reconciliation of right-of-use assets from 1 May 2019 to 30 April 2020.
GROUP | Property | Other | Total |
£m | £m | £m | |
Recognised on adoption of | 2.1 | 0.1 | 2.2 |
IFRS 16 on 1 May 2019 | |||
Additions | 0.7 | - | 0.7 |
Lease modification | 0.1 | - | 0.1 |
Depreciation | (0.6) | - | (0.6) |
Impairment | (0.6) | - | (0.6) |
FX on retranslation | - | - | - |
30 April 2020 | 1.7 | 0.1 | 1.8 |
COMPANY | Property | Other | Total |
£m | £m | £m | |
Recognised on adoption of | 0.7 | - | 0.7 |
IFRS 16 on 1 May 2019 | |||
Additions | 0.1 | - | 0.1 |
Lease modification | 0.1 | - | 0.1 |
Depreciation | (0.3) | - | (0.3) |
30 April 2020 | 0.6 | - | 0.6 |
The table below presents a reconciliation of lease liabilities from 1 May 2019 to 30 April 2020.
GROUP | Property | Other | Total |
£m | £m | £m | |
Recognised on adoption of | 2.2 | 0.1 | 2.3 |
IFRS 16 on 1 May 2019 | |||
Additions | 0.7 | - | 0.7 |
Lease modification | - | - | - |
Repayments of liabilities | (0.9) | - | (0.9) |
FX on retranslation | - | - | - |
30 April 2020 | 2.0 | 0.1 | 2.1 |
COMPANY | Property | Other | Total |
£m | £m | £m | |
Recognised on adoption of | 0.8 | - | 0.8 |
IFRS 16 on 1 May 2019 | |||
Additions | 0.1 | - | 0.1 |
Lease modification | 0.1 | - | 0.1 |
Repayments of liabilities | (0.2) | - | (0.2) |
30 April 2020 | 0.8 | - | 0.8 |
2.4.2 IFRIC 23 Uncertainty over Income Tax Treatments
IFRIC 23 Uncertainty over Income Tax Treatments has been adopted in the year. The adoption of this standard has had no significant effect on the Company or Group's reported financial performance or position.
2.5 Revenue recognition
Under IFRS 15, revenue is recognised when control of the services provided passes to the customer. The Group is required to use judgement in determining the timing of the transfer of control - at a point in time or over time - for each service type.
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
The Group has identified the following significant categories of contracts with customers:
- Instructions to list property for sale
- Conveyancing
- Brokerage
- Lettings - landlord setup services
- Lettings - monthly management services
Instructions
The Group is entitled to an instruction fee at the point at which a property is listed for sale. The Group offers a number of additional services to customers who list their properties for sale, including accompanied viewings and premium portal listings, which are typically charged for at the same time as the instruction. Most services (for example, advice on property sales strategy) are provided before the listing of the property advertisement. Some services (for example post-sales support) are only provided to those customers who accept an offer for their property.
The Group has taken the judgement that all of the services which are provided in exchange for the instruction fee and, where relevant, fees for additional services, represent a single Performance Obligation which is the provision of estate agency services. The reason for this is that the service of listing for sale and these additional services are highly interrelated, are dependent on each other and cannot be purchased separately by customers, or purchased at all unless those customers have instructed the Group to list their property for sale.
Although the services are priced separately, the overall revenue for each contract of this type is attributable to this single Performance Obligation and is recognised as the services as a whole are provided. Revenue is recognised on an output basis over time, as the estate agency services are performed, which results in straight-line recognition.
This method reflects the fact that the customer receives benefit from the Group's performance as the service is provided to the customer. The Group has assessed that the starting point for provision of the service is the customer's instruction to the Group, and the ending point is either the completion of sale or the customer's decision to withdraw from sale.
The nature of the Group's instruction service does not lend itself to observable outputs such as units produced, or milestones signed off by the customer. In view of the large number of customers from whom instructions revenue arises, the Group has taken the view that on a portfolio basis, the most appropriate method to measure the output of the instruction service provided is on a straight line basis over the time elapsed as services are provided.
A key estimate within the Group's accounting policy for revenue from instructions is the length of the period over which estate agency services are performed. The Group utilises analysis of historical data to ascertain the length of this period, which covers both a marketing period and a post-sales support period. Please refer to the significant estimates and judgements section below for further information.
Contract assets and liabilities
The approach described above gives rise to contract liabilities in the form of deferred revenue. Movements in these amounts
are set out within the trade and other payables and contract liabilities note.
The period of service is less than one year and therefore no deferred revenue held on the consolidated statement of financial position will be recognised after more than one year.
Costs associated with Instructions revenue include commissions paid to the Group's LPEs. This commission is due at listing of the advertisement for sale. Therefore, these costs are prepaid and amortised over the average service period. Unamortised costs at each period end are reported as contract assets within prepayments, as set out in the trade and other receivables and contract assets note.
Conveyancing
Where the Group introduces sellers and buyers of properties to one of the Group's third party partners for conveyancing services, the Group earns commission for these referrals, which is due at completion of the property transaction.
In respect of Conveyancing revenue, the Group's Performance Obligation is to make the referral to the Group's third party partners. Following that referral, the involvement of the Group in the conveyancing process is incidental.
Therefore, the Group recognises revenue on completion of its Performance Obligation, at the point of referral. Revenue is recognised at the expected value of the consideration which will become due at completion as determined at the point of referral, calculated by reference to historical data in respect of sale completion rates. The Group monitors the conversion of cases referred at each reporting date, in order to restrict the revenue recognised under this method to an amount at which it is highly probable that reversal will not occur. This approach gives rise to contract assets in the form of accrued income. Movements in amounts recognised as accrued income are set out within the trade and other receivables and contract assets note.
The Group's assessment is that it is acting as an agent of the third party partner which contracts directly with the seller of the property and which invoices that seller directly. Therefore, it is appropriate for the Group to recognise as revenue only the referral fee earned from the third party partner, which is the customer of the Group.
Brokerage
The Group also provides, in parts of Canada, Buyside brokerage and Escrow services. These services are provided both to customers who are sellers and buyers of residential properties, with the Performance Obligation in each case being to assist the customer in bringing the transaction to a successful conclusion. Revenue, in the form of commission, becomes due in respect of these transactions on successful completion of a property sale.
Revenue in respect of brokerage services is recognised at the point at which the Group becomes unconditionally entitled to the consideration. Typically, this point is shortly before the completion of the sale of the property, which is the point at which the Group receives payment. Therefore, the Group recognises contract assets in the form of accrued income for amounts due and unpaid. Movements in this accrued income is set out within the trade and other receivables and contract assets note.
Purplebricks Annual Report and Accounts 2020 53
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
Lettings landlord setup services
The Group offers Lettings services to landlords in the UK only.
When the Group enters into contracts with prospective landlords to list their property to let, the Group's Performance Obligation is to provide a series of services aimed at identifying a suitable tenant for the landlord's property. These services include preparation of an advertisement to let and later support services. Fees charged to landlords in exchange for identifying a tenant for their rental property become due to the Group at tenant move in.
The Group has taken the judgement that all elements of the advertisement service and other support services provided represent a single Performance Obligation related to the identification of a suitable tenant who then moves into the property. This Performance Obligation is the provision of Landlord Setup Services. The Group has taken the judgement that an expected value of consideration which will become due for the Services can be determined using historical data regarding the proportion of successful tenant move ins and therefore the that revenue can be reliably estimated before tenant move in.
All revenue is therefore attributable to this single Performance Obligation.
This revenue is recognised on an output basis over time, as the services are performed between the instruction to list the property to let and tenant move in, which results in straight- line recognition.
Costs associated with Landlord Setup Services revenue include commissions paid to the Group's Local Lettings Experts ("LLEs"). This commission is due at tenant application, which is towards the end of the process. Therefore, these costs are accrued over the period over which Landlord Setup Services are provided. These costs are reported within accruals.
Contract assets and liabilities
Income recognised in advance of cash received represents a contract asset in the form of accrued income. Movements in accrued income are set out within the trade and other receivables and contract assets note.
Amounts due to LLEs which are recognised in advance of payment represent a contract liability in the form of accrued expenses. Movements in accruals are set out within the trade and other payables and contract liabilities note.
Lettings monthly management services
The Group also enters into contracts with landlords to provide rent collection and other tenant management services. Fees charged to landlords in exchange for the ongoing management of their rental properties become due to the Group monthly in arrears over the period of the tenancy.
In respect of fees charged to landlords in exchange for the ongoing management of their rental properties, the Group's Performance Obligation is to provide management services over a period of time. Revenue is recognised on a straight line basis over time as the services are performed.
Amounts due from landlords in exchange for monthly management services are invoiced or deducted from rentals received on behalf of landlords as they become due on a monthly basis. Therefore, no contract assets or liabilities arise from the provision of this service.
2.6 FUNCTIONAL AND PRESENTATION CURRENCY
The individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purposes of the consolidated financial statements, the results and financial position of each group company are expressed in GBP, which is the functional currency of the Company, and the presentational currency for the Group.
2.7 FOREIGN CURRENCIES
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the income statement for the period except for differences arising on the retranslation of non- monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.
2.8 FOREIGN EXCHANGE ON CONSOLIDATION
On consolidation, assets and liabilities of undertakings whose functional currency is other than sterling are translated into sterling at the year-end exchange rates. The results of these undertakings are translated into sterling at average rates of exchange for the year. Exchange differences arising on retranslation are recognised through other comprehensive income in the foreign exchange reserve.
2.9 SEGMENTAL REPORTING
The Group trade is managed as a single division, providing services relating to the sale and letting of properties. However, management report to the Board, being the Chief Operating Decision Maker, using geographical segments being UK, Australia, USA and Canada. The financial information reviewed by the Board is materially the same as that reported under IFRS.
2.10 PENSION BENEFITS
The Group operates defined contribution pension arrangements and accounts for employer pension contribution expenses on an accruals basis.
54 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
2.11 TAXATION
Current tax
Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity. Current income tax assets and liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting periods that remain unpaid at the reporting date. Current tax is payable on taxable profit, which differs from the profit or loss in the financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Repayable tax credits relating to research and development expenditure arising under the HMRC R&D regime for small and medium sized businesses are recognised within current tax.
Deferred tax
Deferred income taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill or on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit on initial recognition. Deferred tax assets and liabilities are calculated, without discounting, at tax rates and laws that are expected to apply to their respective period of realisation, provided those rates are enacted or substantively enacted by the end of the reporting period.
Deferred tax assets are recognised to the extent that it is foreseeable that the underlying tax loss or deductible temporary difference will be able to be utilised against future taxable income. This is assessed based on the Group's forecast of future operating results, adjusted for significant non-taxable income and expenses and specific limits on the use of any unused tax loss or credit.
Deferred tax liabilities are always provided for in full, deferred tax assets and liabilities are offset only when the Group has a right and intention to set off current tax assets and liabilities from the same taxation authority. Changes in deferred tax assets or liabilities are recognised as a component of tax income or expense in profit or loss, except where they relate to items that are recognised in other comprehensive income or directly in equity, in which case the related deferred tax is also recognised in other comprehensive income or equity, respectively.
2.12 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are held at cost less accumulated depreciation and impairment charges.
Depreciation is calculated to write off the cost of property, plant and equipment less the estimated residual value on a straight- line basis over the expected useful economic life of the assets concerned. Estimated residual values are revised annually.
The useful lives over which these assets are depreciated are:
- Computer equipment - over 3 years
- Fixtures and fittings - over 5 years
- Motor vehicles - over 3 years
- Leasehold improvements - over 5 years
2.13 INVESTMENTS IN SUBSIDIARIES
The Company's investments in subsidiaries are stated at cost less any provision for impairment.
2.14 JOINT VENTURES
Under IFRS 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor rather than the legal structure of the joint arrangement.
The Group's interests in joint ventures are accounted for using the equity method, after initially being recognised at cost in the consolidated statement of financial position.
Under the equity method of accounting, investments are initially recognised at cost and adjusted thereafter to recognise the group's share of the post-acquisition profits or losses of the investee in profit or loss, and the Group's share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment.
When the Group's share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity.
Unrealised gains on transactions between the group and its associates and joint ventures are eliminated to the extent of the Group's interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
The carrying amount of equity-accounted investments, which are held at cost in the Company, is tested for impairment in accordance with the policy described in note 2.19.
Purplebricks Annual Report and Accounts 2020 55
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
2.15 BUSINESS COMBINATIONS AND GOODWILL
Acquisitions of subsidiaries are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition- related costs are recognised in the income statement as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that:
- deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;
- liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-Based Payments at the acquisition date (see below); and
- assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.
Goodwill is measured as the excess fair value of the consideration transferred over the fair value of the identifiable net assets acquired. If the total of the consideration transferred, and previously held interest measured at fair value, is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in profit or loss as a bargain purchase gain.
Goodwill is separately disclosed as an intangible asset and is not amortised but tested for impairment annually and when there are any indications that its carrying value is not recoverable. As such, goodwill is stated at cost less any provision for impairment in value. For impairment testing purposes, goodwill is allocated to cash-generating units ('CGUs'). If a subsidiary undertaking is subsequently sold, goodwill arising on acquisition is taken into account in determining the profit or loss on sale.
2.16 CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash in hand together with other short-term, highly liquid deposits which are not subject to any risk of changes in value.
2.17 INTERNALLY DEVELOPED INTANGIBLE ASSETS
Expenditure on research activities is recognised as an expense in the period in which it is incurred and is only incurred in respect of the Group's software platform.
An internally generated intangible asset arising from the Group's development activity in respect of the customer facing Purplebricks software platform is recognised in the statement of financial position when the Group can demonstrate the following:
- the technical feasibility of completing the intangible asset so that it will be available for use or sale.
- its intention to complete the intangible asset and use or sell it.
- its ability to use or sell the intangible asset.
- how the intangible asset will generate probable future economic benefits.
- the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.
- its ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
The useful lives over which these assets are amortised are:
- Internally generated intangible - straight line over 3 years
- Capitalised software - straight line over 3 years
Amortisation is included within administrative expenses.
56 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
2.18 INTANGIBLE ASSETS ACQUIRED IN A BUSINESS COMBINATION
Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost if appropriate less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
The useful lives over which these assets are amortised are:
- patents and trademarks - straight line over 18 months
- customer relationships - straight line over 5 years
- Proprietary tech - straight line over 3 years
Certain intangible assets, such as brands, are deemed to have an indefinite life and are held at cost and not amortised but rather tested annually for impairment. These assets are considered to have an indefinite life, given the strength and durability of the Group's brands and the level of marketing support. The nature of the industry we operate in is such that brand obsolescence is not common, if appropriately supported by advertising and marketing spend.
Amortisation is included within administrative expenses.
2.19 IMPAIRMENT
The carrying amount of the Group's assets including property, plant and equipment and intangibles is reviewed at each year end date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss where it relates to an amount charged to profit or loss.
2.20 FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as
appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. See note 26 for further details.
Financial assets
The Group has financial assets which are measured at amortised cost using the effective interest method, less provision for impairment. Amortisation is presented within administrative expenses. The Group's trade and other receivables fall into this category of financial instruments.
The Group applies the IFRS 9 expected credit loss model. The expected credit losses on trade receivables are by reference to past default experience of the debtors and an analysis of the debtors' current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast conditions at the reporting date.
For trade and other receivables, the amount of credit loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases, the reversal of the previously recognised impairment loss is recognised in profit or loss.
Impairment testing of trade receivables is described in note 20.
Definition of default
The Group considers the circumstances of each significant debtor individually in determining an event of default. However an indicator that a default has occurred is when a financial asset is more than 90 days past due unless the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.
Credit-impaired financial assets
A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:
- a breach of contract, such as a default or past due event;
- it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation
Write off policy
Receivables are written off where there is no reasonable expectation of recovery and enforcement activity has ceased. Any recoveries made are recognised in profit or loss.
Measurement and recognition of expected credit losses
The measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information.
Purplebricks Annual Report and Accounts 2020 57
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
As for the exposure at default, for financial assets, this is represented by the assets' gross carrying amount at the reporting date, the Group's understanding of the specific future financing needs of the debtors, and other relevant forward-looking information.
For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the original effective interest rate. For a lease receivable, the cash flows used for determining the expected credit losses is consistent with the cash flows used in measuring the lease receivable in accordance with IFRS 16.
If the Group has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period, but determines at the current reporting date that the conditions for lifetime ECL are no longer met, the Group measures the loss allowance at an amount equal to 12- month ECL at the current reporting date, except for assets for which the simplified approach was used.
Credit risk management - Sale of receivables
Receivables from customers who elect to pay later for services rather than pay up-front are initially recognised at the transaction price, which is approximate to fair value under a held for sale business model.
In order to manage both liquidity requirements and credit risk in the UK, the Group operates committed facilities with a third party finance house, whereby customer receivables in respect of customers who utilise the Group's "pay later" option are sold immediately to the finance house. The receivables are sold at a discount to face value on non-recourse terms, and the discount retained by the finance house represents its fee for administering the collection of receivables. There are thresholds built into the facility agreement which allow the fee/discount to be revised upwards or downwards on a prospective only basis (i.e. in relation to the sale of receivables arising in the future) if actual credit and funding cost experience differs significantly from the initial assumptions that were used to set the fee.
At the point of sale of receivables to the factor the difference between fair value and sale price is charged to the income statement as finance expense. Receivables due from the factor are measured at amortised cost under a held to collect business model and assessed for impairment under the expected loss model.
Outside of the UK, the Group does not sell on its receivables and therefore bears credit risk and needs to assess expected credit losses.
Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group's credit risk is primarily attributable to its trade receivables. As discussed under "Sale of Receivables" above, credit risk is managed in the UK via a non-recourse receivable sale arrangement.
The credit risk on liquid funds is minimised because the counterparties are UK banks with high credit-ratings assigned by international credit-rating agencies.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables which are not subject to the receivable sale arrangement.
Trade receivables across the Group have been assessed with regard to counterparty specific and macroeconomic credit risk characteristics which vary from country to country and according to the nature of the counterparty. The Group also considers days past due in making this assessment as well as historical credit losses experienced within over a period of 12 months prior to the reporting date. The expected loss rates derived from the assessment described above are adjusted to reflect current and forward-looking information affecting the ability of the customers to settle the receivables. As the Group has a small number of counterparties from whom significant trade receivable amounts are due, this assessment is performed individually by counterparty where appropriate.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.
Borrowings
Interest-bearing loans and overdrafts are initially recorded at fair value, which equates to proceeds less direct issue costs at inception. Subsequent to initial recognition, borrowings are measured at amortised cost, using the effective interest rate method. Any difference between the proceeds, net of transaction costs, and the amount due on settlement is recognised in the Income Statement over the term of the borrowings.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. The only equity instrument applicable to the Company is its issued share capital.
Derivative financial instruments
The Group uses derivative financial instruments to manage its exposure to foreign exchange rate risk via foreign exchange forward contracts. Further details of derivative financial instruments are disclosed in note 27.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.
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Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
2.21 SHARE-BASED PAYMENTS
The Group operates equity settled share option programmes which allow certain employees and LPEs to acquire shares of the Company. The fair value of options granted is recognised as an income statement expense with a corresponding increase in equity. The fair value of market conditions is measured using the Black-Scholes model at grant date. The fair value of non-market conditions is estimated at grant date and re-estimated at each reporting date. The expense is allocated over the vesting period of each tranche of options granted. The relevant deferred tax amount is calculated at each reporting date over the vesting period equivalent to the expected tax deduction on future exercise, and is recognised if appropriate (see deferred tax accounting policy note). Expense in respect of options granted to employees of subsidiaries of the Company is debited to the cost of investment of the subsidiary by which they are employed. An element of the share-based payment cost of UK based employees who perform Group roles is allocated to and recharged to the overseas entities, on a similar basis to salary and other related costs.
2.22 SHARE-BASED PAYMENTS RESERVE
This comprises the cumulative share-based payment charge recognised in profit or loss in relation to equity-settled options, net of transfers of charge on exercise of options to the profit and loss reserve.
2.23 PROVISIONS
Provisions for legal claims are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated.
Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
The increase in the provision due to the passage of time is recognised as interest expense.
2.24 EXCEPTIONAL ITEMS
Exceptional items (referred to last year as "non-recurring items") represent amounts which result from unusual transactions or circumstances which warrant individual disclosure due to their nature and also significance. The identification of these items is judgemental and this judgement is made at Board level. We believe that adjusting for such items improves comparability period on period.
These amounts are adjusted from alternative performance measures in order to present an alternative perspective on the results of the Group. Exceptional items are not expected to recur regularly or cyclically.
2.25 FACTORED RECEIVABLES
Receivables arising from customers who choose to pay later in the UK are sold at a discount to face value on non-recourse terms, with the discount representing the costs charged by the factor. The factor settles the debt to the Group on a net basis, after deducting fees. This gives rise to a loss on derecognition of receivables, which is presented within finance expenses.
Purplebricks Annual Report and Accounts 2020 59
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
3. Critical accounting estimates and judgements
In the application of the Group's accounting policies, the directors are required to make judgements (other than those involving estimations) that have a significant impact on the amounts recognised in the financial statements and to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying 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 the revision and future periods if the revision affects both current and future periods.
Estimates
In the view of the directors, the areas of estimation uncertainty 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 detailed below:
3.1 MEASUREMENT OF INTANGIBLE ASSETS
The Group recognises an intangible asset in respect of software developed in-house. This software is a key part of the Group's operating model and value proposition. Management are required to estimate the time and related value attributable to the element of the development team that relates to the creation and build of intangible assets which meet the criteria for capitalisation in IAS 38. The cost of this team is material and a significant change in this estimate could have a significant effect on the value of costs capitalised. The impact of a change to this estimate could result, at the most extreme, ie in a scenario where either no development team costs are capitalised, or where they are capitalised in full, in a decrease of £3.6m or increase of £2.1m in administrative and establishment expenses in the current year. Further details of the amounts capitalised are included at note 16.
3.2 MEASUREMENT OF DEFERRED TAX ASSETS
The Group has potential deferred tax assets, principally in the form of tax losses and possible tax deductions relating to the exercise of share-based payments. Deferred tax assets are only recognised to the extent it is probable that sufficient future taxable income will be available against which the losses and deductions can be utilised.
The recognition of deferred tax assets is dependent upon the estimation of future taxable profits in the territories that the group operates within. The decision to recognise deferred tax assets is made after taking into account forecasts of future taxable profits, sensitised for downside risk. If the estimated future taxable profits were to change materially, either positively or negatively, this could have a material impact on the tax charge or credit recognised in the income statement. Depending on the length of the forecast period and the scale
of the downside reduction applied, the value of the recognised deferred tax asset could range from 0% to 100% of the balance recognised being £7.1m.
3.3 REVENUE RECOGNITION
Instruction revenue is recognised over the estimated period between instruction and completion or withdrawal of the property from sale ("service period") and the directors are, therefore, required to estimate the average total service period, taking into account historical experience in addition to current and possible future economic conditions and factors. At each reporting date, this estimation includes an assessment of the future service period in respect of instructions on hand at the period end.
As at 30 April 2020, the directors have taken account of the impact of the COVID-19 crisis on the housing market in the UK in developing their view of the likely future service period. The directors assessed, as at 30 April, that in the UK, due to lockdown measures in place in March and April, the future service period in respect of instructions on hand at 30 April 2020 could reasonably be considered to be significantly longer than has historically been the case. While we are in the very early stages of seeing the impact of COVID-19, based on evidence to date, the directors have adopted an estimated service period which is approximately 35% longer than at prior year in calculating contract liabilities in respect of deferred income as at 30 April. An increase or decrease of 10% in the estimated service period would have resulted in an increase or decrease in deferred income of approximately £1.8m respectively.
Significant uncertainty at the reporting date, as to the timing and profile of recovery from lockdown measures and the wider impact of COVID-19 on the UK economy, means there is a greater degree of subjectivity in estimating the future service period than would be the case in a "steady state" scenario and the directors have adopted a best estimate approach, taking into account available evidence. Should the UK housing market recover to pre-crisis levels subsequent to the reporting date, there would be a reasonable expectation that the service period would move closer to the historical norm for future reporting periods.
60 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
The terms of the UK's future trading relationship with the EU following Brexit remain uncertain and could have an effect on the UK property market. Due to the uncertainty of the extent and timing of any impact on the wider UK economy, it is impractical to determine any potential, consequential impact on the timing of revenue recognition in the UK business at the date of this report and no such estimate has been made.
Judgements
The following are the critical judgements, apart from those involving estimations (which are presented separately above), 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.
3.4 REVENUE RECOGNITION
The Group provides services for instruction fees, including fees receivable up front and fees receivable at completion of sale. The Group has taken a judgement that under IFRS 15 the Performance Obligation relating to these fees is discharged over time (between instruction and completion) rather than at a point in time. An alternative judgement that fees should be recognised at a point in time would have a material impact on both deferred income and revenue for the current year. Further detail is set out in the revenue recognition policy above.
4. New and revised IFRSs in issue but not yet effective
At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been issued but are not yet effective and have not been applied early by the Group. Management anticipates that the following pronouncements relevant to the Group's operations will be adopted in the Group's accounting policies for the first period beginning after the effective date of the pronouncement, once adopted by the EU:
Expected date | ||
of adoption | ||
Annual Improvements to IFRS Standards | Amendments to IFRS 3 Business Combinations, IFRS 11 Joint | 1 May 2020 |
2015 - 2017 Cycle | Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs. | |
Definition of Material | To clarify and align the definition of material. The amendments are | 1 May 2020 |
(Amendments to IAS 1 and IAS 8) | intended to improve the understanding of the existing requirements | |
rather than to significantly impact an entity's materiality judgements. | ||
Interest Rate Benchmark Reform | Published in response to the ongoing reform of interest rate | 1 May 2020 |
(Amendments to IFRS 9, IAS 39 and IFRS 7) | benchmarks around the world. The amendments aim to provide relief for | |
hedging relationships. | ||
Definition of a Business | To help entities determine whether an acquired set of activities and assets | 1 May 2020 |
(Amendments to IFRS 3) | is a business or not. The amendments clarify the minimum requirements | |
to be a business, remove the assessment of a market participant's ability to | ||
replace missing elements, and narrow the definition of outputs. |
None of the new standards not yet in issue are expected, once adopted, to give rise to a significant change in the reported results or financial position of the Group.
Purplebricks Annual Report and Accounts 2020 61
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
5. Alternative performance measures
The Group makes use of a number of alternative performance measures in assessing the performance of the business. The definition and relevance of each of these is set out below. The Group believes that these measures, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with helpful additional information on the underlying performance of the Group.
Adjusted EBITDA
Definition
Profit or loss from operating activities, adding back depreciation, amortisation, share-based payment charges and exceptional items.
Relevance to strategy
The adjusted measure is considered relevant to assessing the underlying performance of the Group against its strategy and plans. The rationale for excluding certain items is as follows:
- Depreciation: a non-cash item which fluctuates depending on the timing of capital investment. We believe that a measure which removes this volatility improves comparability of the Group's results period on period.
- Amortisation: a non-cash item which varies depending on the timing of and nature of acquisitions, and on the timing of and extent of investment in internally generated intangibles such as software. We believe that a measure which removes this volatility improves comparability of the Group's results period on period. Where applicable, impairment of intangible assets is also excluded as an exceptional item.
- Share-basedpayment charges: a non-cash item which varies significantly depending on the share price at the date of grants under the Group's share option schemes, and depending on the assumptions used in valuing these awards as they are granted. We believe that a measure which removes this volatility improves comparability of the Group's results period on period and also improves comparability with other companies which typically do not operate similar share-based payment schemes.
- Exceptional items: These items represent amounts which result from unusual transactions or circumstances and at a significance which warrants individual disclosure. We believe that adjusting for such exceptional items improves comparability period on period. See note 8 for further detail of amounts disclosed as exceptional in the year.
Reconciliation
Please see segmental reporting in note 7.
Adjusted operating costs
Definition
Adjusted operating costs are administrative and establishment expenses, adjusted by adding back depreciation, amortisation and share-based payment charges and exceptional items.
Relevance to strategy
The adjusted measure is considered relevant to assessing the underlying performance of the Group against its strategy and plans. The rationale for excluding depreciation, amortisation, share-based payments charges and exceptional costs from this measure is consistent with that set out above in the "Adjusted EBITDA" section.
Reconciliation | 2020 | 2020 | 2019 |
CONTINUING GROUP (2019 | - IFRS 16 | - IAS 17 | - IAS 17 |
basis | basis | basis | |
restated) | |||
£m | £m | £m | |
Administrative expenses | (45.5) | (45.5) | (36.3) |
Depreciation & amortisation | 6.1 | 5.5 | 4.4 |
Share-based payment | 0.7 | 0.7 | 2.7 |
charge | |||
Exceptional items | 1.6 | 1.6 | 0.5 |
Adjusted operating costs | (37.1) | (37.7) | (28.7) |
2020 | 2020 | 2019 | |
- IFRS 16 | - IAS 17 | - IAS 17 | |
basis | basis | basis | |
UK | £m | £m | £m |
Administrative expenses | (31.2) | (31.2) | (24.8) |
Depreciation & amortisation | 3.5 | 3.2 | 2.3 |
Share-based payment | (0.1) | (0.1) | 2.1 |
(credit) / charge | |||
Exceptional items | 1.6 | 1.6 | 0.5 |
Adjusted operating costs | (26.2) | (26.5) | (19.9) |
Adjusted operating loss
Definition
Profit or loss from operating activities, adding back share- based payment charges, share of results of joint venture and exceptional items.
Relevance to strategy
The adjusted measure is considered relevant to assessing the underlying performance of the Group against its strategy and plans. The rationale for excluding share-based payments charges from this measure is consistent with that set out above in the "Adjusted EBITDA" section.
Reconciliation
Please see segmental reporting in note 7.
62 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
6. Revenue
Revenue by contract type | 2020 | 2019 |
£m | £m | |
Continuing operations | ||
Instructions | 65.6 | 69.3 |
Conveyancing | 16.7 | 17.9 |
Other (Lettings and Brokerage) | 28.8 | 26.6 |
111.1 | 113.8 | |
Discontinued operations | ||
Instructions | ||
3.6 | 14.1 | |
Conveyancing | 1.8 | 2.0 |
Other (Lettings and Brokerage) | ||
0.7 | 6.6 | |
Total revenue | 117.2 | 136.5 |
7. Segmental reporting
The Group trade is managed as a single division, providing services relating to the sale and letting of properties, however management report to the Board (the Board being the Chief Operating Decision Maker ("CODM")) using geographical segments. The financial information reviewed by the Board is materially the same as that reported under IFRS and falls under the four geographic locations: the UK, Canada, Australia and the US. During the year, no customer contributed 10% or more of the Group's revenues (2019: none).
On 7 May 2019, the Company announced that it was exiting the Australian market, and on 3 July 2019, the Company announced its withdrawal from the US market. In each case the business was put into an orderly rundown ahead of closure. The segmental analysis includes recharges between segments. Certain of these recharges are of costs which are not classified as discontinued. These are adjusted in the tables below. The operating losses of discontinued segments are reconciled to the net loss relating to discontinued activities within this note.
The following is an analysis of the Group's revenue and results by reporting segment:
Purplebricks Annual Report and Accounts 2020 63
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
Arising on | Adjustment | Continuing | Arising on | Adjustment for | Discontinued | ||||||
Year ended 30 April 2020 | UK | Canada | consolidation | for recharges | operations | Australia | US | consolidation | recharges | activities | Total |
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
Revenue | 80.5 | 30.6 | - | - | 111.1 | 1.5 | 4.6 | - | - | 6.1 | 117.2 |
Cost of sales | (28.9) | (14.5) | - | - | (43.4) | (2.2) | (2.2) | - | - | (4.4) | (47.8) |
Gross profit | 51.6 | 16.1 | - | - | 67.7 | (0.7) | 2.4 | - | - | 1.7 | 69.4 |
Gross profit margin (%) | |||||||||||
64.1% | 52.5% | - | - | 60.9% | (46.7%) | 52.2% | - | - | 27.9% | 59.2% | |
Administrative expenses | (31.2) | (10.6) | (1.6) | (2.1) | (45.5) | (3.4) | (4.8) | - | 2.1 | (6.1) | (51.6) |
Marketing expenses | (20.6) | (8.2) | - | - | (28.8) | (1.2) | (2.0) | - | - | (3.2) | (32.0) |
Share of results of joint | - | - | (2.8) | - | (2.8) | - | - | - | - | - | (2.8) |
venture | |||||||||||
Operating (loss)/profit | (0.2) | (2.7) | (4.4) | (2.1) | (9.4) | (5.3) | (4.4) | - | 2.1 | (7.6) | (17.0) |
Reconciliation to adjusted EBITDA
Operating (loss)/profit Depreciation & amortisation Share-based payments
Share of results of joint venture
Exceptional items
(0.2) | (2.7) | (4.4) | (2.1) | (9.4) | (5.3) | (4.4) | - | 2.1 | (7.6) | (17.0) |
3.5 | 1.0 | 1.6 | - | 6.1 | 0.5 | 0.3 | - | - | 0.8 | 6.9 |
(0.1) | 0.3 | - | 0.5 | 0.7 | (0.7) | (0.8) | - | (0.5) | (2.0) | (1.3) |
- | - | 2.8 | - | 2.8 | - | - | - | - | - | 2.8 |
1.6 | - | - | - | 1.6 | - | - | - | - | - | 1.6 |
Adjusted EBITDA | 4.8 | (1.4) | - | (1.6) | 1.8 | (5.5) | (4.9) | - | 1.6 | (8.8) | (7.0) |
Reconciliation of administrative expenses to adjusted operating costs | |||||||||||
Administrative expenses | (31.2) | (10.6) | (1.6) | (2.1) | (45.5) | (3.4) | (4.8) | - | 2.1 | (6.1) | (51.6) |
Depreciation & amortisation | 3.5 | 1.0 | 1.6 | - | 6.1 | 0.5 | 0.3 | - | - | 0.8 | 6.9 |
Share-based payments | (0.1) | 0.3 | - | 0.5 | 0.7 | (0.7) | (0.8) | - | (0.5) | (2.0) | (1.3) |
Exceptional items | 1.6 | - | - | - | 1.6 | - | - | - | - | - | 1.6 |
Adjusted operating costs | (26.2) | (9.3) | - | (1.6) | (37.1) | (3.6) | (5.3) | - | 1.6 | (7.3) | (44.4) |
Reconciliation of operating loss)/profit to adjusted operating (loss)/profit
Operating (loss)/profit
Share-based payments
Share of results of joint venture
Exceptional items
Adjusted operating profit / (loss)
(0.2) | (2.7) | (4.4) | (2.1) | (9.4) | (5.3) | (4.4) | - | 2.1 | (7.6) | (17.0) |
(0.1) | 0.3 | - | 0.5 | 0.7 | (0.7) | (0.8) | - | (0.5) | (2.0) | (1.3) |
- | - | 2.8 | - | 2.8 | - | - | - | - | - | 2.8 |
1.6 | - | - | - | 1.6 | - | - | - | - | - | 1.6 |
1.3 | (2.4) | (1.6) | (1.6) | (4.3) | (6.0) | (5.2) | - | 1.6 | (9.6) | (13.9) |
64 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
Arising on | Adjustment | Continuing | Adjustment Discontinued | |||||||
Year ended 30 April 2019 | UK | Canada consolidation for recharges | operations | Australia | US | for recharges | activities | Total | ||
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
Revenue | 90.1 | 23.7 | - | - | 113.8 | 11.4 | 11.3 | - | 22.7 | 136.5 |
Cost of sales | (33.3) | (11.1) | - | - | (44.4) | (7.4) | (4.8) | - | (12.2) | (56.6) |
Gross profit | 56.8 | 12.6 | - | - | 69.4 | 4.0 | 6.5 | - | 10.5 | 79.9 |
Gross profit margin (%) | 63.0% | 53.2% | - | - | 61.0% | 35.1% | 57.5% | - | 46.3% | 58.5% |
Administrative expenses | (24.8) | (8.4) | (1.0) | (2.1) | (36.3) | (10.7) | (16.1) | 2.1 | (24.7) | (61.0) |
Marketing expenses | (26.7) | (7.4) | - | - | (34.1) | (12.1) | (24.5) | - | (36.6) | (70.7) |
Share of results of joint venture | - | - | (0.5) | - | (0.5) | - | - | - | - | (0.5) |
Operating profit/(loss) | 5.3 | (3.2) | (1.5) | (2.1) | (1.5) | (18.8) | (34.1) | 2.1 | (50.8) | (52.3) |
Reconciliation to adjusted EBITDA | ||||||||||
Operating profit/(loss) | 5.3 | (3.2) | (1.5) | (2.1) | (1.5) | (18.8) | (34.1) | 2.1 | (50.8) | (52.3) |
Depreciation & amortisation | 2.3 | 0.8 | 1.3 | - | 4.4 | - | - | - | - | 4.4 |
Share-based payments | 2.1 | 0.4 | - | 0.2 | 2.7 | 0.9 | 0.9 | (0.2) | 1.6 | 4.3 |
Share of results of joint venture | - | - | 0.5 | - | 0.5 | - | - | - | - | 0.5 |
Non-recurring acquisition | 0.5 | - | - | - | 0.5 | - | - | - | - | 0.5 |
costs | ||||||||||
Adjusted EBITDA | 10.2 | (2.0) | 0.3 | (1.9) | 6.6 | (17.9) | (33.2) | 1.9 | (49.2) | (42.6) |
Reconciliation of administrative expenses to adjusted operating costs | ||||||||||
Administrative expenses | (24.8) | (8.4) | (1.0) | (2.1) | (36.3) | (10.7) | (16.1) | 2.1 | (24.7) | (61.0) |
Depreciation & amortisation | 2.3 | 0.8 | 1.3 | - | 4.4 | - | - | - | - | 4.4 |
Share-based payments | 2.1 | 0.4 | - | 0.2 | 2.7 | 0.9 | 0.9 | (0.2) | 1.6 | 4.3 |
Non-recurring acquisition | 0.5 | - | - | - | 0.5 | - | - | - | - | 0.5 |
costs | ||||||||||
Adjusted operating costs | (19.9) | (7.2) | 0.3 | (1.9) | (28.7) | (9.8) | (15.2) | 1.9 | (23.1) | (51.8) |
Reconciliation of operating profit / (loss) to adjusted operating profit / (loss)
Operating profit / (loss) Share-based payments Share of results of joint venture
Non-recurring acquisition costs
Adjusted operating profit / (loss)
5.3 | (3.2) | (1.5) | (2.1) | (1.5) | (18.8) | (34.1) | 2.1 | (50.8) | (52.3) |
2.1 | 0.4 | - | 0.2 | 2.7 | 0.9 | 0.9 | (0.2) | 1.6 | 4.3 |
- | - | 0.5 | - | 0.5 | - | - | - | - | 0.5 |
0.5 | - | - | - | 0.5 | - | - | - | - | 0.5 |
7.9 | (2.8) | (1.0) | (1.9) | 2.2 | (17.9) | (33.2) | 1.9 | (49.2) | (47.0) |
Purplebricks Annual Report and Accounts 2020 65
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
2020 | 2019 | |
£m | £m | |
Non current assets | ||
UK | 69.0 | 77.2 |
Canada | 5.7 | 4.5 |
Continuing operations | 74.7 | 81.7 |
Australia | - | 0.1 |
US | - | 0.2 |
Discontinued activities | - | 0.3 |
Consolidation adjustments | (11.0) | (20.8) |
Total | 63.7 | 61.2 |
2020 | 2019 | |
£m | £m | |
Total assets | ||
UK | 113.6 | 228.9 |
Canada | 13.0 | 9.9 |
Continuing operations | 126.6 | 238.8 |
Australia | - | 5.0 |
US | - | 4.6 |
Discontinued activities | - | 9.6 |
Consolidation adjustments | (11.0) | (95.8) |
Total | 115.6 | 152.6 |
2020 | 2019 | |
£m | £m | |
Total liabilities | ||
UK | 22.0 | 28.1 |
Canada | 13.1 | 7.2 |
Continuing operations | 35.1 | 35.3 |
Australia | - | 32.6 |
US | - | 49.0 |
Discontinued activities | - | 81.6 |
Consolidation adjustments | (1.6) | (68.0) |
Total | 33.5 | 48.9 |
66 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
The Australia and US operations represent in their entirety the segments as disclosed above. The operating losses of discontinued segments are reconciled to the net loss relating to discontinued activities as follows:
2020 | 2019 | ||
£m | £m | ||
Operating loss relating to discontinued segments | (7.6) | (50.8) | |
Net finance expense relating to discontinued segments | (0.1) | (0.3) | |
Tax charge relating to discontinued segments | - | (0.2) | |
Loss from discontinued operations | (7.7) | (51.3) | |
Cashflows relating to discontinued operations were as follows: | |||
2020 | 2019 | ||
£m | £m | ||
Operating cash outflow before changes in working capital | |||
Continuing operations | (2.5) | 8.8 | |
Discontinued operations | (10.4) | (56.2) | |
(12.9) | (47.4) | ||
Operating cash outflow after changes in working capital, interest and taxation paid | |||
Continuing operations | (10.9) | 9.9 | |
Discontinued operations | (13.1) | (59.0) | |
Net cash outflow from operating activities | (24.0) | (49.1) | |
Investing activities | |||
Continuing operations | (7.1) | (42.0) | |
Discontinued operations | - | (0.2) | |
(7.1) | (42.2) | ||
Financing activities | |||
Continuing operations | (0.7) | 1.0 | |
Discontinued operations | - | - | |
(0.7) | 1.0 | ||
Purplebricks Annual Report and Accounts 2020 67
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
8. Loss from operating activities
Loss from operating activities for the year has been arrived at after charging: | 2020 | 2019 |
£m | £m | |
Amounts received by auditors and their associates in respect of: | ||
Audit of group financial statements | 0.2 | 0.1 |
Audit of subsidiaries | 0.1 | 0.1 |
Bad debt (credit) / expense | (0.4) | 1.0 |
Foreign exchange (gains)/losses | 0.1 | (0.5) |
Depreciation and other amounts written off PPE: | ||
Owned, in respect of continuing activities | 0.9 | 0.8 |
Owned, in respect of discontinued activities | 0.2 | - |
Depreciation of right of use assets - property in respect of continuing activities | 0.6 | - |
Impairment of right of use assets related to discontinued activities - property | 0.6 | - |
Amortisation of development costs | 2.2 | 1.7 |
Amortisation of software | 0.3 | 0.5 |
Amortisation of other intangibles | 1.6 | 1.5 |
Impairment of development costs | 0.5 | - |
Aggregate charge against income in respect of research & development costs not eligible for capitalisation | 3.4 | 3.5 |
Rentals payable under plant and machinery operating leases | - | 0.1 |
Leasehold property rentals | - | 1.3 |
Exceptional items | 1.6 | 0.5 |
Exceptional items comprise:
- Costs of a fundamental restructuring of the customer service and sales functions of the UK business, primarily reflecting changes to the network of independent LPEs as described in the business model, of £1.2m
- Costs of supporting the network of independent LPEs in response to the COVID-19 crisis of £0.4m
These items have been identified as exceptional because they are (i) the first instance of such costs being incurred in the group's history and (ii) they are not expected to recur regularly or cyclically.
Support to the LPE network during the COVID-19 crisis has continued into FY 2021. Further costs in relation to restructuring other operational aspects of the UK business are expected to continue in FY 2021, as part of the same overarching, one-off restructuring programme. The Board expects the aggregate costs of each of these items to be material across the two years.
The aggregate amounts accrued but not yet paid in respect of exceptional charges total £0.5m. All amounts are expected to be paid in cash within 12 months. All amounts disclosed as exceptional are deductible to tax.
All exceptional items are presented within administration expenses in the consolidated income statement.
The aggregate charge in respect of research and development represents the total cost incurred during the year, less amounts capitalised in accordance with IAS 38: Intangible Assets. Amounts capitalised are shown in note 16.
Impairment of right of use assets arose from leases of properties in the US and Australia which had no ongoing value to the group. Impairment of development costs arose from the amounts held in respect of the US and Australia customer facing websites.
In the prior year, the current statutory auditor also earned £36,000 in respect of services related to corporate finance transactions earned prior to appointment as statutory auditor.
68 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
9. Staff costs
The monthly average number of persons employed by the Group during the year was as follows: | |||||||
2020 | 2019 | ||||||
Continuing | Discontinued | Total | Continuing | Discontinued | Total | ||
no. | no. | no. | no. | no. | no. | ||
Sales and Marketing | 715 | 12 | 727 | 728 | 183 | 911 | |
Technical | 108 | 3 | 111 | 117 | 27 | 144 | |
Administration | 91 | 19 | 110 | 86 | 100 | 186 | |
1,241 | |||||||
914 | 34 | 948 | 931 | 310 | |||
The aggregate payroll costs of the persons employed by the Group, including the directors, were as follows:
2020 | 2019 | ||||||||
Continuing | Discontinued | Total | Continuing | Discontinued | Total | ||||
£m | £m | £m | £m | £m | £m | ||||
Wages and salaries | 19.4 | 4.4 | 23.8 | 16.1 | 14.7 | 30.8 | |||
Compensation for loss of office | 0.2 | - | 0.2 | - | - | - | |||
Social security | 2.8 | 0.4 | 3.2 | 2.1 | 0.4 | 2.5 | |||
Pension | 0.9 | 0.1 | 1.0 | 0.2 | 0.4 | 0.6 | |||
Share-based payment charge / (credit) | 0.7 | (2.0) | (1.3) | 2.7 | 1.6 | 4.3 | |||
24.0 | 2.9 | 26.9 | 21.1 | 17.1 | 38.2 | ||||
2020 | 2019 | ||||||||
no. | no. | ||||||||
The average number of persons employed by the Company | |||||||||
Sales and Marketing | 295 | 337 | |||||||
during the year was as follows: | Technical | 73 | 84 | ||||||
Administration | 23 | 44 | |||||||
391 | 465 | ||||||||
2020 | 2019 | ||||||||
£m | £m | ||||||||
The aggregate payroll costs of the persons employed by the | |||||||||
Wages and salaries | 15.1 | 11.3 | |||||||
Company, including the directors, were as follows: | |||||||||
Compensation for loss of office | 0.2 | - | |||||||
Social security | 1.6 | 1.4 | |||||||
Pension | 0.3 | 0.2 | |||||||
Share-based payment charge | 0.3 | 2.1 | |||||||
17.5 | 15.0 | ||||||||
2020 | 2019 | ||||||||
£'000 | £m | ||||||||
The following table provides details of remuneration paid to | |||||||||
Short-term employee benefits | 1.0 | 0.7 | |||||||
directors of the Company. | |||||||||
Compensation for loss of office | 0.2 | - | |||||||
Post employment benefits | - | - | |||||||
Share-based payment charge | 0.8 | 0.4 | |||||||
2.0 | 1.1 | ||||||||
The highest paid director received remuneration of £0.8m (2019: £0.7m) during the year.
No director had a material interest in any contract in relation to the business of the Group.
No director exercised share options during the current or preceding financial year.
The aggregate value of any company contributions paid, or treated as paid, to a money purchase pension scheme in respect of directors' qualifying services was £11,000 (2019: £2,000).
During the year retirement benefits under money purchase schemes accrued in respect of qualifying services for 2 directors (2019: 2). The Group does not operate any defined benefit retirement arrangements.
In addition to the 8 directors (2019: 9), 11 senior management (2019: 18) are also considered to be key management personnel.
Purplebricks Annual Report and Accounts 2020 69
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
The following table provides details of remuneration paid to key management personnel, being 19 individuals (2019: 27 individuals):
2020 | 2019 | |
£m | £m | |
Salaries or fees, including bonuses and employer's national insurance | 2.9 | 4.0 |
Compensation for loss of office | 0.2 | - |
Share-based payment charge | 1.1 | 1.0 |
4.2 | 5.0 | |
The remuneration of the Directors for the years ended 2020 and 2019 was as follows:
Year ended 30 April 2020 | Short-term | Post | Share-based | |
employee | employment | payments | ||
benefits | benefits | charge | Total | |
£'000 | £'000 | £'000 | £'000 | |
Executive directors | ||||
M Bruce | 217 | - | 2 | 219 |
V Darvey | 346 | 10 | 370 | 726 |
J Davies | 350 | - | 456 | 806 |
Non-executive directors | ||||
P Pindar | 103 | - | - | 103 |
A Blair | 54 | 1 | - | 55 |
S Downing | 54 | - | - | 54 |
M Wroe | 38 | - | - | 38 |
Total | 1,162 | 11 | 828 | 2,001 |
Michael Bruce stepped down from his role as an executive director of the group on 7 May 2019. His termination payment of £200,000 is reflected in the short-term employee benefits costs for the year ended 30 April 2020.
The table above reflects the accounting charge under IFRS 2 of equity-settled awards. No director exercised share options during the year. Details of options granted to directors are set out in the Directors' Remuneration Report on page 31.
Year ended 30 April 2019 | Short-term | Post | Share-based | |
employee | employment | payments | ||
benefits | benefits | charge | Total | |
£'000 | £'000 | £'000 | £'000 | |
Executive directors | ||||
M Bruce | 250 | - | 23 | 273 |
J Davies | 273 | - | 415 | 688 |
Non-executive directors | ||||
P Pindar | 30 | - | - | 30 |
N Discombe | 3 | - | - | 3 |
A Whitehorn | 5 | - | - | 5 |
A Blair | 56 | 1 | - | 57 |
S Downing | 56 | - | - | 56 |
M Wroe | 61 | 1 | - | 62 |
Total | 734 | 2 | 438 | 1,174 |
70 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
10. Share-based payments
The Company operates an HMRC approved executive management incentive plan (EMI), an employee share ownership plan (ESOP) and a licensee share option plan (LSOP). In addition, the Company granted awards under a Performance Share Plan (PSP) during the year.
Under these approved plans, a total of 14 schemes are currently operating, as listed below.
The vesting conditions for scheme 4 is based on length of service, with 25% of the options vesting on or after the 12 month anniversary of the employee's start date, and a further 6.25% vesting every three months thereafter so that options vest in full on the 48 month anniversary of the employee's start date.
The vesting conditions for schemes 6 to 19 are based on future service from the date of grant, with between 25% and 33% of the options vesting on or after either the 12 or 24 month anniversary of the grant, and a further vesting every three months thereafter so that options vest in full on the 48 month anniversary of the date of grant to the employee or the licensee.
On 25 July 2019 the Company granted 2,461,200 options under a Performance Share Plan ("PSP") (Scheme 20) to certain employees. These options have an exercise price of £0.01 and vest over 3 years. 50% of the vest is subject to achievement of an EBITDA target and 50% to a total shareholder return ("TSR") target.
Details of the total number of shares under option at the period end are set out below:
Grant date | Sch No | Type of | No. of option | No. of | Exercise | Earliest exercise | Remaining | |
scheme | holders | options | Price | date | contractual life | |||
10 Aug 2015 | 4 | EMI | 1 | 3,384 | £0.13 | 10 Aug 2015 | 5.3 years | |
29 Jun 2016 | 6 | ESOP/LSOP | 45 | 1,509,581 | £1.29 | 29 Jun 2017 | 6.2 years | |
05 | Dec 2016 | 7 | ESOP/LSOP | 94 | 1,424,213 | £1.25 | 5 Dec 2017 | 6.6 years |
04 Jan 2017 | 8 | ESOP | 2 | 387,500 | £1.40 | 4 Jan 2018 | 6.7 years | |
05 | Mar 2017 | 9 | ESOP/LSOP | 58 | 899,127 | £3.10 | 5 Mar 2018 | 6.8 years |
29 Jun 2017 | 10 | ESOP/LSOP | 2 | 1,400,000 | £3.05 | 29 Jun 2018 | 7.2 years | |
19 Dec 2017 | 12 | ESOP/LSOP | 43 | 571,400 | £3.79 | 19 Dec.2018 | 7.6 years | |
05 | Mar 2018 | 13 | ESOP/LSOP | 9 | 110,000 | £4.15 | 05 Mar 2019 | 7.8 years |
24 | Jul 2018 | 14 | ESOP/LSOP | 73 | 1,908,000 | £2.81 | 24 Jul 2019 | 8.2 years |
02 | Aug 2018 | 15 | ESOP | 1 | 125,000 | £2.87 | 02 Aug 2020 | 8.3 years |
20 | Nov 2018 | 17 | ESOP | 2 | 200,000 | £1.73 | 20 Nov 2022 | 8.6 years |
07 Jan 2019 | 18 | ESOP/LSOP | 1 | 700,000 | £1.65 | 07 Jan 2020 | 8.7 years | |
23 Jan 2019 | 19 | ESOP | 1 | 500,000 | £1.59 | 23 Jan 2020 | 8.7 years | |
25 Jul 2019 | 20 | PSP | 15 | 2,143,200 | £0.01 | 25 Jul 2022 | 2.2 years |
3,715,692 share options were exercised during the year (2019: 1,247,338)
The number and weighted average exercise price of share options are as follows:
30 April 2020 | 30 April 2020 | 30 April 2019 | 30 April 2019 | ||
Weighted average | Number of | Weighted average | Number of | ||
exercise price | options | exercise price | options | ||
Outstanding at start of period | £1.97 | 21,826,838 | £1.85 | 20,072,961 | |
Granted during the period | £0.01 | 2,461,200 | £2.26 | 7,519,000 | |
Exercised during the period | £0.02 | (3,715,692) | £0.77 | (1,247,338) | |
Lapsed during the period | £2.40 | (8,738,941) | £2.24 | (4,518,285) | |
Outstanding at end of period | £1.86 | 11,833,405 | £1.97 | 21,826,838 | |
Exercisable at end of period | £2.16 | 6,452,478 | £1.16 | 7,241,657 | |
The weighted average share price at the date of exercise of options was £1.00.
The weighted average remaining contractual life of the options is 7.4 years (2019: 8.2 years).
Purplebricks Annual Report and Accounts 2020 71
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
Fair value assumptions in respect of share-based payments
The fair value of services received in return for share options granted is measured by reference to the fair value of CSOP and LSOP share options granted. The estimate of fair value is measured using the Black-Scholes model.
On 25 July 2019 the Company granted 2,461,200 options under a Performance Share Plan ("PSP") (Scheme 20) to a number of employees. These options have an exercise price of £0.01 and vest over 3 years. 50% of the vest is subject to achievement of an EBITDA target and 50% to a total shareholder return ("TSR") target. The share price at the date of grant was £1.15. The valuation of the EBITDA target has been by management judgement, and will be updated at each reporting period. The valuation of the TSR target was made at grant by use of a Monte Carlo model. Inputs into the Monte Carlo model were an expected volatility of 40% and a risk-free interest rate of 0.44%. The total value of the TSR element as at the date of grant was £1.0m.
The volatility assumption, measured at the standard deviation of expected share price movements, is based on a review of the Group's own historical volatility and of volatility used by listed companies in the same sector.
Details of the fair value of share options granted in the period and the prior period, together with the assumptions used in determining the fair value are summarised below.
30 April 2020 | 30 April 2019 | |
Weighted average share price at the date of grant | £1.15 | £2.26 |
Weighted average exercise price | £0.01 | £2.26 |
Weighted average contractual life (years) | 3 | 10 |
Weighted average expected volatility | 40% | 36.3% |
Weighted average risk free interest rate | 0.4% | 1.5% |
Total fair value of options granted (£m) | £1.0 | 6.7 |
(Credit) / charge to consolidated statement of comprehensive income
The (credit) / charge to consolidated statement of comprehensive income, included within administrative expenses, comprises:
30 April 2020 | 30 April 2019 | |
£m | £m | |
Share-based payment charge in respect of continuing activities | 0.7 | 2.7 |
Share-based payment (credit) / charge in respect of discontinued activities | (2.0) | 1.6 |
(1.3) | 4.3 | |
Credit to consolidated statement of changes in equity
30 April 2020 | 30 April 2019 | |
£m | £m | |
Tax credit with respect to share-based payments | 0.2 | 3.2 |
72 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
11. Taxation
2020 | 2019 | |
£m | £m | |
Current tax credit/(charge) - Group | ||
Current year | - | (0.2) |
Adjustments in respect of prior year | (0.1) | - |
R&D tax credit relating to prior years | - | 0.3 |
Total current tax | (0.1) | 0.1 |
Deferred tax credit - Group | ||
Current year | 1.7 | 1.0 |
Adjustments in respect of prior year | 0.1 | - |
Total deferred tax | 1.8 | 1.0 |
Total credit for the year | 1.7 | 1.1 |
Reconciliation of effective tax rate
The tax credit/(charge) for the period differs from the standard rate of corporation tax in the UK during the year of 19% (FY 2019: 19%). The differences are explained below.
2020 | 2019 | |
£m | £m | |
Loss before taxation (continuing group) | (13.2) | (4.9) |
Less share of loss of post-tax earnings of equity accounted investments | 2.8 | 0.5 |
Loss before taxation of equity accounted investments (continuing group) | (10.4) | (4.4) |
Tax credit calculated at UK corporate tax rate of 19% (FY 19: 19%) | 2.0 | 0.8 |
Effects of: | ||
Differences between UK and non-UK corporate tax rates | 0.3 | 0.3 |
Non-deductible and non-taxable items | (1.0) | (1.1) |
Utilisation of previously unrecognised deferred tax assets | - | 0.2 |
Other changes in unrecognised deferred tax assets | - | 0.8 |
Changes in tax rates | 0.4 | - |
Deferred tax prior year adjustment | 0.1 | - |
Tax charge related to discontinued operations | (0.2) | |
Current tax prior year adjustment | (0.1) | - |
R&D tax credit relating to prior years | - | 0.3 |
Total credit for the year | 1.7 | 1.1 |
UK: The UK corporation tax rate for the year was 19%. From 1 April 2020 the UK corporation tax rate had been scheduled to reduce to 17% and this rate was used for the measurement of UK deferred tax assets in the prior year. During the year, the UK Government announced the cancellation of the proposed rate cut, meaning that the UK corporation tax rate remains at 19%, so UK deferred tax assets have been remeasured at this higher rate. No R&D tax credit is included in the year ended 30 April 2020, as the Company qualified as "large" for the purpose of R&D tax credits and so claimed under the "RDEC" regime, with the resulting credit included in operating profit, rather than tax.
Deferred tax assets / liabilities are measured at the rate at which they are expected to reverse or be used.
Purplebricks Annual Report and Accounts 2020 73
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
Tax included in changes in equity
GROUP | 2020 | 2019 |
£m | £m | |
Deferred tax | 0.2 | 3.0 |
Current tax | - | 0.3 |
Total tax credit | 0.2 | 3.3 |
The tax credits to equity represent the use as current year deductions, or recognition as deferred tax assets, of tax deductions related to share incentive schemes, which are in excess of related income statement expenses.
Recognised deferred tax assets and liabilities
GROUP | 2020 | 2019 | ||||||||||
£m | £m | |||||||||||
Assets | 9.0 | 7.1 | ||||||||||
Liabilities | ||||||||||||
(4.4) | (4.5) | |||||||||||
Net deferred tax assets | 4.6 | 2.6 | ||||||||||
ASSETS | LIABILITIES | |||||||||||
GROUP 2020 | ||||||||||||
Fixed asset | Other | Share- | Fixed asset | Other | ||||||||
timing | timing | based | timing | timing | ||||||||
Tax losses | differences | differences | payments | differences | differences | Total | ||||||
£m | £m | £m | £m | £m | £m | £m | ||||||
At 1 May 2019 | 6.1 | 0.2 | - | 0.8 | (4.5) | - | 2.6 | |||||
Included in the income statement | 2.3 | - | 0.1 | (0.7) | 0.3 | (0.2) | 1.8 | |||||
Included in equity | 0.3 | - | - | (0.1) | - | - | 0.2 | |||||
At 30 April 2020 | 8.7 | 0.2 | 0.1 | - | (4.2) | (0.2) | 4.6 | |||||
ASSETS | LIABILITIES | |||||||||||
GROUP 2019 | ||||||||||||
Fixed asset | Other | Share- | Fixed asset | |||||||||
timing | timing | based | timing | |||||||||
Tax losses | differences | differences | payments | differences | Total | |||||||
£m | £m | £m | £m | £m | £m | |||||||
At 1 May 2018 | 3.1 | - | - | - | (0.1) | 3.0 | ||||||
Acquisition of subsidiaries | 0.3 | - | 0.1 | - | (4.7) | (4.3) | ||||||
Included in the income statement | (0.2) | 0.2 | (0.1) | 0.7 | 0.3 | 0.9 | ||||||
Included in equity | 2.9 | 0.1 | - | 3.0 | ||||||||
At 30 April 2019 | 6.1 | 0.2 | - | 0.8 | (4.5) | 2.6 | ||||||
74 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
ASSETS | LIABILITIES | ||||||
COMPANY 2020 | |||||||
Fixed | Fixed asset | ||||||
asset | Other | ||||||
timing | timing | Share-based | timing | ||||
Tax losses | differences | differences | payments | differences | Total | ||
£m | £m | £m | £m | £m | £m | ||
At 1 May 2019 | 5.2 | 0.1 | - | 0.8 | - | 6.1 | |
Included in the income statement | 1.5 | (0.1) | 0.1 | (0.7) | - | 0.8 | |
Included in equity | 0.3 | - | - | (0.1) | - | 0.2 | |
At 30 April 2020 | 7.0 | - | 0.1 | - | - | 7.1 | |
ASSETS | LIABILITIES | ||||||
COMPANY 2019 | |||||||
Fixed | Fixed asset | ||||||
asset | Other | ||||||
timing | timing | Share-based | timing | ||||
Tax losses | differences | differences | payments | differences | Total | ||
£m | £m | £m | £m | £m | £m | ||
At 1 May 2018 | 2.9 | - | - | - | - | 2.9 | |
Included in the income statement | (0.6) | 0.1 | - | 0.7 | - | 0.2 | |
Included in equity | 2.9 | - | - | 0.1 | - | 3.0 | |
At 30 April 2019 | 5.2 | 0.1 | - | 0.8 | - | 6.1 | |
As at 30 April 2019, potential deferred tax assets in Australia and the US were not recognised, in anticipation of possible closure of the businesses and, therefore, insufficient evidence that there would be relevant profits available in the future to utilise them. Following closure of the businesses and filing of final tax returns, these former unrecognised deferred tax assets have now ceased to exist and are no longer reported as either recognised or unrecognised. Deferred tax assets in the UK and Canada are recognised in full, based on financial plans for these segments, which forecast the availability of sufficient profits for the utilisation of deferred tax assets.
The value of the future tax deduction for share-based payments is dependent on the share price at the point of exercise, therefore its value is highly uncertain.
Unrecognised deferred tax assets
2020 | 2019 | ||||
GROUP | Unrecognised | Unrecognised | |||
Gross Value | Tax value | Gross Value | Tax value | ||
£m | £m | £m | £m | ||
Tax losses | - | - | 89.9 | 22.3 | |
Share-based payments | |||||
- | - | - | - | ||
Fixed asset timing differences | - | - | - | - | |
Other timing differences | |||||
- | - | 1.8 | 0.4 | ||
- | - | 91.7 | 22.7 | ||
Purplebricks Annual Report and Accounts 2020 75
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
12. Earnings per share
BASIC AND DILUTED | ||
2020 | 2019 | |
Total including discontinued operations | ||
Loss £m | (19.2) | (54.9) |
Weighted average number of shares ('000) | 306,389 | 303,090 |
Basic loss per share (£) | ||
(0.06) | (0.18) | |
Potentially dilutive shares unissued at year end ('000) | 9,738 | 21,827 |
Total potentially dilutive shares at reporting date ('000) | 316,127 | 324,917 |
Loss per share (£) - diluted | ||
(0.06) | (0.18) | |
Diluted loss per share is presented as equal to the basic loss per share as a result of the Group recording a loss for the year, which cannot be diluted.
BASIC AND DILUTED | ||||
2020 | 2019 | |||
Continuing operations | ||||
Loss £m | (11.5) | (3.6) | ||
Weighted average number of shares ('000) | 306,389 | 303,090 | ||
Basic loss per share (£) | (0.04) | (0.01) | ||
Potentially dilutive shares unissued at year end ('000) | ||||
9,738 | 21,827 | |||
Total potentially dilutive shares at reporting date ('000) | 316,127 | 324,917 | ||
Loss per share (£) - diluted | ||||
(0.04) | (0.01) | |||
Diluted loss per share from continuing operations is presented as equal to the basic loss per share as a loss cannot be diluted. | ||||
The table below reconciles the weighted average number of shares ('000): | ||||
Weighted average number of shares 2019 | 303,090 | |||
Weighted average issue of new shares under share option schemes | 3,299 | |||
Weighted average number of shares 2020 | 306,389 | |||
76 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
13. Finance income
2020 | 2019 | |
£m | £m | |
Interest income | 0.5 | 0.7 |
Fair value gains in respect of derivatives | ||
- | 0.1 | |
Finance income | 0.5 | 0.8 |
14. Finance expense
2020 | 2019 | |
£m | £m | |
Interest expense | 0.1 | 0.1 |
Lease interest | 0.1 | - |
Charge for factored receivables | 4.1 | 4.1 |
Finance expense | 4.3 | 4.2 |
15. Goodwill
Lettings CGU | Canada | Group | |
£m | £m | £m | |
Cost and carrying amount | |||
At 30 April 2019 and 30 April 2020 | 2.6 | 16.9 | 19.5 |
Please refer to note 18 for details of the impairment assessments performed in respect of the carrying amount of goodwill.
Purplebricks Annual Report and Accounts 2020 77
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
16. Intangible assets
GROUP | Internally | Proprietary | |||||||
generated | Capitalised | Patents and | Customer | ||||||
intangible | software | trademark | relationships | technology | Brand | Other | Total | ||
£m | £m | £m | £m | £m | £m | £m | £m | ||
Cost | |||||||||
Balance at 1 May 2018 | 4.2 | 0.8 | 0.1 | 1.1 | - | - | - | 6.2 | |
Addition | - | 0.2 | - | - | - | - | 0.4 | 0.6 | |
Acquisition of subsidiary | - | - | - | 1.7 | 2.9 | 13.3 | - | 17.9 | |
Internally developed | 2.6 | - | - | - | - | - | - | 2.6 | |
Balance at 30 April 2019 | 6.8 | 1.0 | 0.1 | 2.8 | 2.9 | 13.3 | 0.4 | 27.3 | |
Internally developed | 2.1 | - | - | - | - | - | - | 2.1 | |
Additions | - | 0.1 | - | - | - | - | - | 0.1 | |
Transfer | - | - | - | - | - | - | (0.4) | (0.4) | |
Effect of foreign exchange | - | - | - | - | - | (0.1) | - | (0.1) | |
Balance at 30 April 2020 | 8.9 | 1.1 | 0.1 | 2.8 | 2.9 | 13.2 | - | 29.0 | |
Amortisation | |||||||||
Balance at 30 April 2018 | (1.4) | - | (0.1) | (0.2) | - | - | - | (1.7) | |
Amortisation for the year | (1.7) | (0.5) | - | (0.5) | (0.8) | - | (0.2) | (3.7) | |
Balance at 30 April 2019 | (3.1) | (0.5) | (0.1) | (0.7) | (0.8) | - | (0.2) | (5.4) | |
Amortisation for the year | (2.2) | (0.3) | - | (0.6) | (1.0) | - | - | (4.1) | |
Impairment | (0.5) | - | - | - | - | - | - | (0.5) | |
Transfer | - | - | - | - | - | - | 0.2 | 0.2 | |
Balance at 30 April 2020 | (5.8) | (0.8) | (0.1) | (1.3) | (1.8) | - | - | (9.8) | |
Net carrying value | |||||||||
Balance at 30 April 2020 | 3.1 | 0.3 | - | 1.5 | 1.1 | 13.2 | - | 19.2 | |
Balance at 30 April 2019 | 3.7 | 0.5 | - | 2.1 | 2.1 | 13.3 | 0.2 | 21.9 | |
COMPANY | Internally generated | Capitalised | |||||||
intangible | software | Total | |||||||
£m | £m | £m | |||||||
Balance at 30 April 2018 | 4.2 | 0.8 | 5.0 | ||||||
Addition | - | 0.1 | 0.1 | ||||||
Internally developed | 2.6 | - | 2.6 | ||||||
Balance at 30 April 2019 | 6.8 | 0.9 | 7.7 | ||||||
Internally developed | 2.1 | - | 2.1 | ||||||
Balance at 30 April 2020 | 8.9 | 0.9 | 9.8 | ||||||
Amortisation | |||||||||
Balance at 30 April 2018 Amortisation for the year Balance at 30 April 2019 Amortisation for the year Impairment
Balance at 30 April 2020
Net carrying value
Balance at 30 April 2020
Balance at 30 April 2019
(1.4) | - | (1.4) |
(1.7) | (0.2) | (1.9) |
(3.1) | (0.2) | (3.3) |
(2.2) | (0.2) | (2.4) |
(0.5) | - | (0.5) |
(5.8) | (0.4) | (6.2) |
3.1 | 0.5 | 3.6 |
3.7 | 0.7 | 4.4 |
78 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
17. Property, plant and equipment
GROUP | Right-of-useRight-of-use | |||||||
Computer | Furniture | Leasehold | assets | assets | ||||
equipment | & fittings | improvements | - property | - other | Total | |||
£m | £m | £m | £m | £m | £m | |||
Cost | ||||||||
Balance at 30 April 2018 | 1.2 | 0.5 | - | - | - | 1.7 | ||
Recognised on acquisition of | ||||||||
subsidiary | 0.4 | 0.1 | - | - | - | 0.5 | ||
Additions | 0.7 | 0.3 | 0.2 | - | - | 1.2 | ||
Disposals | - | - | - | - | - | - | ||
Balance as 30 April 2019 | ||||||||
2.3 | 0.9 | 0.2 | - | - | 3.4 | |||
Recognised on adoption | ||||||||
of IFRS 16 (see note 2) | - | - | - | 2.1 | 0.1 | 2.2 | ||
Additions | 0.6 | 0.1 | 0.1 | 0.7 | - | 1.5 | ||
Disposals | (0.3) | (0.2) | - | - | - | (0.5) | ||
Effect of lease modification | - | - | - | 0.1 | - | 0.1 | ||
Balance as 30 April 2020 | 2.6 | 0.8 | 0.3 | 2.9 | 0.1 | 6.7 | ||
Depreciation | ||||||||
Balance at 30 April 2018 | (0.5) | (0.1) | - | - | - | (0.6) | ||
Charge for the year | (0.6) | (0.2) | - | - | - | (0.8) | ||
Disposals | - | - | - | - | - | - | ||
Balance as 30 April 2019 | (1.1) | (0.3) | - | - | - | (1.4) | ||
Charge for the year | (0.8) | (0.3) | - | (0.6) | - | (1.7) | ||
Impairment | - | - | - | (0.6) | - | (0.6) | ||
Disposals | 0.3 | 0.2 | - | - | - | 0.5 | ||
Balance as 30 April 2020 | (1.6) | (0.4) | - | (1.2) | - | (3.2) | ||
Net book value | ||||||||
At 30 April 2020 | 1.0 | 0.4 | 0.3 | 1.7 | 0.1 | 3.5 | ||
At 30 April 2019 | 1.2 | 0.6 | 0.2 | - | - | 2.0 | ||
Right-of-use | ||||||||
COMPANY | Computer | Furniture | assets | |||||
equipment | & fittings | - property | Total | |||||
£m | £m | £m | £m | |||||
Cost | ||||||||
Balance at 1 May 2018 | 0.9 | 0.4 | - | 1.3 | ||||
Additions | 0.4 | 0.1 | - | 0.5 | ||||
Balance as 30 April 2019 | ||||||||
1.3 | 0.5 | - | 1.8 | |||||
Recognised on adoption of IFRS 16 (see note 2) | ||||||||
- | - | 0.7 | 0.7 | |||||
Additions | 0.3 | - | 0.1 | 0.4 | ||||
Effect of lease modification | - | - | 0.1 | 0.1 | ||||
Balance as 30 April 2020 | ||||||||
1.6 | 0.5 | 0.9 | 3.0 | |||||
Depreciation | ||||||||
Balance at 1 May 2018 | ||||||||
(0.5) | (0.1) | - | (0.6) | |||||
Charge for the year | (0.3) | (0.1) | - | (0.4) | ||||
Balance as 30 April 2019 | (0.8) | (0.2) | - | (1.0) | ||||
Charge for the year | (0.3) | (0.1) | (0.2) | (0.6) | ||||
Balance as 30 April 2020 | (1.1) | (0.3) | (0.2) | (1.6) | ||||
Net book value | ||||||||
At 30 April 2020 | ||||||||
0.5 | 0.2 | 0.7 | 1.4 | |||||
At 30 April 2019 | ||||||||
0.5 | 0.3 | - | 0.8 |
Right-of-use assets have been recognised under IFRS 16 as set out in note 2. The majority of these assets relate to property leases. Other assets relate to vehicle leases and leases of certain office equipment. During the year Group lease payments totalled £1.0m, of which £0.1m related to repayment of interest and £0.9m related to repayment of principal amounts.
Purplebricks Annual Report and Accounts 2020 79
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
18. Investment in subsidiaries
COMPANY | £m |
Cost | |
1 May 2019 | 54.6 |
Share-based payment charge / (credit) in respect of employees of subsidiaries | (1.2) |
Intercompany balances capitalised during the year | |
4.6 | |
At 30 April 2020 | |
58.0 | |
Provision for impairment | |
As at 1 May 2019 | |
(22.7) | |
Provisions made during the year | |
(3.7) | |
As at 30 April 2020 | |
(26.4) | |
Carrying amount | |
At 30 April 2020 | |
31.6 | |
At 30 April 2019 | |
31.9 |
The Group consists of a Parent Company, Purplebricks Group plc, incorporated in the UK, and a number of subsidiaries held directly by Purplebricks Group plc, certain of which operate and are incorporated in Canada. Subsidiaries in the US and Australia are no longer operating.
The Company holds 100% of the ordinary share capital and voting rights in respect of all subsidiaries.
Investments in the US and Australia
During the year, the Company capitalised amounts receivable from its US subsidiary into cost of investment, resulting in an increase in cost of investment of £4.6m. Credits in respect of previously recognised share based payment charges in respect of US and Australian employees which lapsed on those employees leaving the business totaled £1.5m. This credit is offset by a charge in respect of Canadian employees of £0.3m. The net increase in cost of investment in US and Australian subsidiaries of £3.1m has been impaired in full. The other £0.6m impairment charge relates to BFL (see below). At 30 April 2020, there is no remaining investment in respect of the US and Australia. During the year the Company also impaired £5.2m of intercompany receivables due from Australia.
Impairment Review
BFL
The acquisition of BFL Property Management Limited ("BFL") in March 2017 gave rise to a cost of investment in the company balance sheet of £3.6m, and a goodwill amount in the consolidated balance sheet of £2.6m. As required by IAS 36, the carrying value of indefinite lived assets is tested annually for impairment.
BFL trading since acquisition has been in line with expectations at the time of acquisition, and as anticipated the Lettings business of Purplebricks Group plc has benefitted from the expertise acquired with BFL. Over time, contracts with landlords held by BFL have been replaced as they naturally come to an end with contracts with Purplebricks
Group. Therefore, part of the value of the acquired business is now represented by synergies within the group, rather than in contracts held by the acquired company. No new contracts are currently being entered into by the BFL statutory entity.
The goodwill arising on the acquisition of BFL has been allocated to the cash generating unit represented by the group's UK lettings business as a whole. This is because following the integration of BFL staff into the wider UK lettings business, the activity in lettings relating to BFL cannot be distinguished from the wider lettings business.
A discounted cash flow calculation has been prepared in respect of the UK lettings business based on historical trends within this business out to 30 April 2023. These forecasts have taken account of recent experience during the COVID crisis, which has affected the Lettings business comparatively less significantly. A terminal value has then been calculated based on a terminal growth rate of 2.0%. The cashflows forecast have been discounted using a pre-tax rate of 8.5%. This calculation indicates significant headroom over the carrying value of goodwill attributable to the BFL CGU. This calculation indicates a recoverable value of £26.1m for this CGU, and headroom over the carrying value of goodwill of £23.5m.
Changes to the assumptions used which are required to cause an impairment in carrying value are:
- an increase in discount rate to 46.2%;
- a reduction in assumed revenue growth rates of 13.5% in each year forecasted; and
- a negative terminal growth rate assumption.
The Directors no not believe that there is reasonably possible change in a key assumption on which management has based its determination of the unit's recoverable amount that would cause the unit's carrying amount to exceed its recoverable amount.
80 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
Impairment of cost of investment in BFL
In the prior year, due to the reduction in the size of the business conducted within BFL since acquisition as a result of the partial transfer of trade as described above, and as this transfer of trade was expected to continue in future years, the cash flow forecasts indicated that a partial impairment of the cost of investment is required. This impairment amounted to £3.0m. This impairment resulted from management decisions taken as to the operation of the wider Lettings business rather than resulting from lower than expected performance of BFL post acquisition.
As at 30 April 2020, management have re-performed a discounted cash flow calculation taking into account contracts held by BFL. These calculations indicate that the remaining carrying value of the investment of £0.6m is not supported by the contracts which BFL continues to operate. Therefore this amount has been impaired in full.
Canada
The acquisition of DuProprio ("Canada") in July 2018 gave rise to a cost of investment in the company balance sheet of £30.9m, a goodwill amount in the consolidated balance sheet of £16.9m, and other intangibles of £17.8m, including £13.3m in respect of the DuProprio brand. The goodwill and brand are not amortised.
As required by IAS 36, the carrying value of indefinite lived assets is tested annually for impairment. The assessment has been performed at the total Canada level, as Canada is assessed as a single income generating unit.
Trading since acquisition has been in line with expectations at the time of acquisition, with significant growth outside Quebec driven by investment in the Purplebricks brand in this region.
A discounted cash flow calculation prepared in respect of the Canada business over the period to 30 April 2025, based on historical trends, current market conditions including experience to date of the COVID crisis and the timing and extent of future recovery, as well as expectations of future market trends. These forecasts indicate significant headroom over the carrying value of indefinite life intangible assets attributable to the CGU.
Key assumptions within this calculation include the rate of revenue growth within the forecast period, the growth rate of 2.0% used to calculate the terminal value and the discount rate of 13.0% used to discount the forecast cashflows. This calculation indicates a recoverable value of £42.4m for this CGU, and headroom over the carrying value of the assets of the business of £10.0m.
Changes to the assumptions used which are required to cause an impairment in carrying value are:
- an increase in discount rate to 15.2%;
- a reduction in assumed revenue growth rates of 5.5% in each year forecasted;
- a negative terminal growth rate assumption.
The Directors no not believe that there is a reasonably possible change in a key assumption on which management has based its determination of the unit's recoverable amount that would cause the unit's carrying amount to exceed its recoverable amount. The proceeds from the sale of the Canadian business post year end, as disclosed in note 31, were in excess of the carrying value of goodwill and intangible assets, which supports the view that the carrying value is recoverable as at 30 April 2020.
During the year, a reorganisation of the Canadian group of companies was carried out to simplify its corporate structure and reduce the number of Canadian entities from 10 to 4.
Name of subsidiary | Country of | Country of | Nature of business | Register |
incorporation | operation | ed office | ||
BFL Property Management Limited | United Kingdom | United Kingdom | Residential lettings | (1) |
Purplebricks Australia Pty Limited | Australia | Australia | Real estate agency | (2) |
Purplebricks Inc | USA | USA | Real estate agency | (3) |
Centerpoint Closing Services LLC | USA | USA | Real estate agency | (3) |
9059-2114 Quebec Inc | Canada | Canada | Real estate agency | (4) |
4523024 Canada Inc | Canada | Canada | Real estate agency | (4) |
CF Real Estate Maritimes Inc | Canada | Canada | Real estate agency | (4) |
8495122 Canada Inc | Canada | Canada | Real estate agency | (5) |
Registered offices:
- Suite 7, Cranmore Place, Cranmore Drive, Shirley, West Midlands B90 4RZ, United Kingdom
- 50 Miller Street, North Sydney, NSW 2060, Australia
- 400 Spectrum Center Drive, Ste. 360, Irvine, California 92618
- 300 - 8389 ave Sous-le-Vent, Lévis (Québec) G6X 1K7, Canada
- 4000 - 1 Place Ville-Marie, Montréal (Québec) H3B-4M4 Canada
Purplebricks Annual Report and Accounts 2020 81
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
19. Investment in jointly controlled entity
GROUP | COMPANY | |
£m | £m | |
At 1 May 2019 | 10.7 | 11.2 |
Equity investments in the year | 4.6 | 4.6 |
Share of result for the year (see below) | (2.8) | - |
At 30 April 2020
In December 2018 Purplebricks Group plc purchased 50% of the ordinary share capital of Einhundertsiebte "Media" Vermogensverwaltungsgesellschaft bmH ("JV HoldCo"), a company incorporated in Germany which held a 26% investment in Homeday GbmH ("Homeday"), another company incorporated in Germany, from AVIV Group GmbH (then called Funfundachtzigste "Media" Vermoegensverwaltungsgesellschaft mbH), a wholly owned subsidiary of Axel Springer SE, a related party of the Company. The other 50% shareholding in JV HoldCo continues to be held by the Axel Springer group.
Purplebricks and the Axel Springer group operate JV HoldCo as a joint venture under a Joint Venture Agreement.
Based in Berlin, Homeday operates homeday.de, a transaction- based digital real estate platform in Germany that brings customers together with experienced brokers and supports them in buying and selling property.
Axel Springer has the right once per year to choose to increase its investment in JV Holdco beyond 50% by acquiring shares from Purplebricks at defined points up to 2023 for variable consideration which is based on the future performance of Homeday GmbH or a return on investment for Purplebricks.
JV HoldCo and the other shareholders of Homeday entered into an Investment Agreement and a Shareholders' Agreement. These agreements set out put and call options under which the remaining shares of Homeday can be acquired in the future by JV HoldCo. These agreements included a milestone target set during 2018 which was achieved in December 2019 and which has led to the acquisition of Homeday by JV HoldCo during the year (see below).
Current year developments
In August 2019, the Joint Venture Agreement, the Investment Agreement and the Shareholders' Agreement were amended and restated in to reflect the progress made by Homeday.
Under the amended Investment Agreement, in September 2019, JV HoldCo provided a convertible loan to Homeday of €10m, funded equally by Purplebricks and Axel Springer via an equity investment into JV HoldCo. The €5m provided by Purplebricks to JV HoldCo has led to the increase in investment in the year reflected in the table above.
12.515.8
In November 2019, Axel Springer invested EUR 10m into JV HoldCo in the form of a convertible loan. JV HoldCo then invested the same amount into Homeday in the form of a convertible loan.
Following the achievement of the "AS Capital Increase" "Milestone" target set during 2018 in December 2019, in March 2020 Axel Springer invested a further EUR 20m into JV HoldCo in the form of a convertible loan. Purplebricks did not participate in this round of funding to JV HoldCo. Of this EUR 20m, EUR 5m was invested into Homeday, along with the conversion of existing convertible loans with a principal value of EUR 20m held by JV HoldCo, in exchange for 49,063 newly issued shares of EUR 1 each in Homeday. The other EUR 15m was lent to Homeday in the form of a loan. These transactions took the shareholding of JV HoldCo in Homeday to 54.39% and therefore following these transactions JV HoldCo controls Homeday. JV HoldCo therefore consolidated 100% of the results of Homeday from 1 January 2020, with Purplebricks accounting for a 50% share of those results.
Under the amended Shareholders' Agreement, put and call options exist between JV HoldCo and the other shareholders of Homeday which may require or allow JV HoldCo to acquire shares held by the other shareholders, for consideration to be determined with reference to the performance of Homeday in the calendar years 2022 and 2023. The potential liabilities of JV HoldCo under these put and call options has been included in the total consideration calculated at the point of acquisition of Homeday by JV HoldCo.
Accounting approach
Following the achievement of the AS Capital Increase Milestone and the additional investment described above, the JV partners assessed as of the end of December 2019 that the put and call options that exist between JV HoldCo and the minority shareholders of Homeday were virtually certain to be exercised on one side or the other. Therefore JV HoldCo has from 1 January 2020 (the month following the achievement of the Milestone) applied the anticipated acquisition method, on the basis that the minority shareholders will be bought out in the future before access to any dividend stream or other return and therefore do not have present access to the economic returns of Homeday, and has fully consolidated the results of Homeday without any minority interest, but with a liability to the other shareholders representing the estimated future amounts payable to them at their eventual exit.
82 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
As part of the acquisition accounting process, in accordance with IFRS3 and IFRS 10, JV HoldCo revalued both its existing 26% shareholding in Homeday and the convertible loans existing as at the acquisition date. Based on the provisional fair value accounting exercise undertaken in the year, gains on these revaluations amounted to £5.2m, of which Purplebricks' share was £2.6m. These gains have been reflected in the income statement of JV HoldCo and in the share of result shown in the table above. The overall share of result is net of Purplebricks' share of Homeday's losses for the period, which amounted to £5.3m, and amortisation of intangible assets arising on acquisition of £0.1m. Therefore the share of net loss which has been accounted for in the year is £2.8m.
As the conversion of Axel Springer's loans to JV HoldCo into shares in JV HoldCo is not reasonably certain as at 30 April 2020, the Group's 50% holding in JV HoldCo continues to be accounted for as a joint venture, under the equity method.
Potential future developments
Under the amended Joint Venture Agreement Purplebricks has the right, at its discretion, to provide further capital and loan funding to Homeday through JV HoldCo. Should Purplebricks choose not to participate in further funding of Homeday through JV HoldCo, its share in JV HoldCo and thus indirectly in Homeday may decrease if its joint venture partner decides to exercise its right to conversion of the convertible loans from AVIV to 107. Media. (in the limited time window (two weeks per year) in which this is possible).
Under the amended Joint Venture Agreement Purplebricks has the right, at its discretion, to provide further funding to JV HoldCo to put JV HoldCo in a position to meet its purchase price payment obligations resulting from the put and call options. Should Purplebricks choose not to participate in such further funding of Homeday through JV HoldCo, its share in JV HoldCo and thus indirectly in Homeday may decrease if its joint venture partner decides to make further investments in Homeday via JV HoldCo on its own.
There are no significant legal restrictions on the ability of 107. Media to declare or pay cash dividends. However, future dividends would be dependent on the future trading and cash generating performance of Homeday.
Purplebricks Annual Report and Accounts 2020 83
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
20. Trade and other receivables and contract assets
GROUP | COMPANY | ||||||
2020 | 2019 | 2020 | 2019 | ||||
£m | £m | £m | £m | ||||
Receivable within 12 months | |||||||
Trade and other receivables | 6.8 | 6.2 | 3.2 | 0.6 | |||
Amounts owed by group undertakings | |||||||
- | - | - | 1.4 | ||||
Prepayments | 3.4 | 5.2 | 2.3 | 3.4 | |||
10.2 | 11.4 | 5.5 | 5.4 | ||||
Contract assets - accrued income | 5.3 | 9.7 | 5.3 | 8.2 | |||
Contract assets - prepaid cost of sales | 5.3 | 6.3 | 5.1 | 5.6 | |||
20.8 | 27.4 | 15.9 | 19.2 | ||||
Receivable after more than 12 months | |||||||
Amounts owed by group undertakings
In order to manage both liquidity requirements and credit risk in the UK, the Group operates committed facilities with a third party finance house. Further detail is set out in the accounting policy detailed in note 2.25.
In Canada, the Group's fees are typically received at the point at which they become due. In 2020, receivables in the US and Australia were not sold on and the Group therefore bore credit risk in those territories.
As the Group recognises accrued income at the expected value of consideration receivable, no credit loss provision against accrued income is considered necessary.
Amounts owed by group undertakings to the Company bear interest at 3.75% above LIBOR and are repayable upon demand by the Company. See further detail in respect of these amounts as provided in note 27.
- | - | 6.0 | - |
Restatement
At 30 April 2020, contract assets (accrued income and prepaid cost of sales) have been separately presented on the face of the statement of financial position. The comparative statement of financial position has been restated to conform to the current year's presentation. No changes have been made to the total amounts.
The majority of expected credit loss provision at 30 April 2019 related to operations in the US and Australia. As these operations have terminated in the year, any unutilised loss provision was released to profit and loss. Given the nature of the Group's receivables in the UK and Canada, management have assessed that no significant future credit losses are likely. The movement in loss allowances for trade receivables during the year was as follows:
GROUP | COMPANY | |||||||
£m | £m | |||||||
Opening loss allowance at 1 May 2019 | 0.9 | 0.1 | ||||||
Credit to loss allowance recognised in profit or loss during the year | ||||||||
(0.4) | (0.1) | |||||||
Receivables written off during the year as uncollectible | (0.5) | - | ||||||
Loss allowance at 30 April 2020 | ||||||||
- | - | |||||||
GROUP | 0-30 days | 31-60 days | 60+days | |||||
As at 30 April 2020 | Current | past due | past due | past due | Total | |||
£m | £m | £m | £m | £m | ||||
Gross carrying amount | 4.9 | 0.8 | 0.6 | 0.5 | 6.8 | |||
Loss allowance | - | - | - | - | - | |||
Net carrying amount | 4.9 | 0.8 | 0.6 | 0.5 | 6.8 | |||
Expected loss rate | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | |||
GROUP | 0-30 days | 31-60 days | 60+days | |||||
As at 30 April 2019 | Current | past due | past due | past due | Total | |||
£m | £m | £m | £m | £m | ||||
Gross carrying amount | 3.8 | 0.9 | 0.7 | 1.7 | 7.1 | |||
Loss allowance | - | - | (0.1) | (0.8) | (0.9) | |||
Net carrying amount | 3.8 | 0.9 | 0.6 | 0.9 | 6.2 | |||
Expected loss rate | 0.0% | 0.0% | 11.0% | 47.0% | 12.7% |
84 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
COMPANY | 0-30 days | 31-60 days | 60+days | ||
Current | past due | past due | past due | Total | |
As at 30 April 2020 | £m | £m | £m | £m | £m |
Gross carrying amount | 3.1 | - | - | 0.1 | 3.2 |
Loss allowance | - | - | - | - | - |
Net carrying amount | 3.1 | - | - | 0.1 | 3.2 |
Expected loss rate | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% |
COMPANY | 0-30 days | 31-60 days | 60+days | ||
As at 30 April 2019 | Current | past due | past due | past due | Total |
£m | £m | £m | £m | £m | |
Gross carrying amount | 0.4 | - | - | 0.3 | 0.7 |
Loss allowance | - | - | - | (0.1) | (0.1) |
Net carrying amount | 0.4 | - | - | 0.2 | 0.6 |
Expected loss rate | 0.0% | 0.0% | 0.0% | 44.6% | 17.4% |
Summary of movements in contract assets - accrued income | GROUP | COMPANY |
£m | £m | |
Balance at 1 May 2018 | 6.4 | 6.3 |
Revenue recognised prior to invoice | (13.3) | (14.1) |
Amounts invoiced | 16.6 | 16.0 |
Balance at 30 April 2019 | 9.7 | 8.2 |
Revenue recognised prior to invoice | (18.5) | (16.7) |
Amounts invoiced | 14.1 | 13.8 |
Balance at 30 April 2020 | 5.3 | 5.3 |
Accrued income at 30 April 2020 relates primarily to referrals to the Group's conveyancing partners, where the Group's performance obligation is fulfilled at referral but payment is due on completion of the property sale. All accrued income is expected to convert to cash within 12 months. The level of accrued income has decreased year on year due to a lower number of cases on hand at 30 April 2020 due to the COVID-19 crisis.
Summary of movements in contract assets - prepaid cost of sales | GROUP | COMPANY |
£m | £m | |
Balance at 1 May 2018 | 6.3 | 5.1 |
Costs capitalised | 31.0 | 23.6 |
Amounts amortised to the income statement | (31.0) | (23.1) |
Balance at 30 April 2019 | 6.3 | 5.6 |
Costs capitalised | 32.7 | 20.6 |
Amounts amortised to the income statement | (33.7) | (21.1) |
Balance at 30 April 2020 | 5.3 | 5.1 |
As set out in note 2.5, within prepayments are amounts relating to payments of commissions to LPEs and to LLEs. Commissions are payable to agents at the point at which an Instruction is taken. These costs are capitalised at the start of the transaction and then amortised, and costs therefore recognised, in line with recognition of revenue relating to the associate services, as those services are provided. The table above sets out movements in these costs.
Purplebricks Annual Report and Accounts 2020 85
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
21. Trade and other payables, contract liabilities, leases and borrowings
GROUP | COMPANY | ||||||
2020 | 2019 | 2020 | 2019 | ||||
£m | £m | £m | £m | ||||
Amounts falling due within one year | |||||||
Trade payables | 3.2 | 11.3 | 2.3 | 7.0 | |||
Other taxation and social security | 1.8 | 2.4 | 0.9 | 0.9 | |||
Other creditors | 1.4 | 0.2 | - | 0.1 | |||
Accruals | |||||||
5.4 | 11.1 | 4.9 | 5.5 | ||||
11.8 | 25.0 | 8.1 | 13.5 | ||||
Contract liabilities - deferred income | |||||||
14.6 | 19.3 | 13.0 | 14.7 | ||||
Provisions (see below) | 0.4 | - | 0.4 | - | |||
Borrowings | |||||||
0.1 | - | - | - | ||||
Lease liability | 0.7 | - | 0.3 | - | |||
27.6 | 44.3 | 21.8 | 28.2 | ||||
Amounts falling due after more than one year | |||||||
Borrowings | 0.1 | - | - | - | |||
Lease liability | |||||||
1.4 | - | 0.5 | - | ||||
1.5 | - | 0.5 | - | ||||
As set out in note 2.5, the Group invoices instruction services in advance of providing the service. This gives rise to contract liabilities in the form of deferred income. The number of customers being serviced at 30 April 2020 was lower than the number being serviced at 30 April 2019. This has given rise to a lower deferred income balance. However the effect is partially offset by an increase in the estimated service period (see also note 2.5), due to the effect of COVID-19 on the UK and Canada housing markets as at 30 April 2020. All deferred income relates to partially unsatisfied performance obligations in respect of instructions revenue. All of the performance obligations will be satisfied within one year of the reporting date, and therefore all deferred income will be recognised within one year of the reporting date.
All trade and other payables are short-term. The directors consider that the carrying amount of trade and other payables approximates to their fair value.
Amounts falling due after more than 1 year - borrowings
During the year, the Group took out a loan of £0.3m to fund the acquisition of a new telephony system in Canada. This loan bears interest at 3.0% and is repayable in monthly instalments until May 2021.
Movements in provisions | GROUP | COMPANY | |||||
2020 | 2019 | 2020 | 2019 | ||||
£m | £m | £m | £m | ||||
As at 1 May 2019 | - | - | - | - | |||
Amounts charged to income statement | 0.4 | - | 0.4 | - | |||
As at 30 April 2020 | 0.4 | - | 0.4 | - | |||
Provisions were made during the year against legal claims. All amounts at year end are expected to be utilised within one year.
Summary of movements in deferred income | GROUP | COMPANY |
£m | £m | |
Balance at 1 May 2018 | 16.8 | 13.5 |
Payments received | 85.9 | 52.2 |
Revenue recognised net of refunds | (83.4) | (51.0) |
Balance at 30 April 2019 | 19.3 | 14.7 |
Payments received | 64.5 | 42.9 |
Revenue recognised net of refunds | (69.2) | (44.6) |
Balance at 30 April 2020 | 14.6 | 13.0 |
Deferred income at 30 April 2020 relates primarily to instructions revenue received or receivable at instruction but where the Group's performance obligation is fulfilled over time. The amount of deferred income at 30 April 2020 is lower than at prior year, as the decline in transaction volumes caused by the COVID-19 crisis has only been partially offset by an increase in the expected performance period year on year. The Group expects to recognise all deferred revenue as income within the next 12 months.
86 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
22. Lease liabilities
GROUP | COMPANY | |
£m | £m | |
Amounts payable within 12 months | 0.8 | 0.4 |
Amounts payable later than one year but less than 5 years | 1.4 | 0.5 |
Amounts payable after more than 5 years | 0.2 | - |
Minimum lease payments | 2.4 | 0.9 |
Future finance charges | (0.3) | (0.1) |
Minimum lease payments less future finance charges | 2.1 | 0.8 |
Recognised as a liability - current | 0.7 | 0.3 |
Recognised as a liability - non-current but not later than 5 years | 1.2 | 0.5 |
Recognised as a liability - after more than 5 years | 0.2 | - |
Recognised as a liability - total non-current | 1.4 | 0.5 |
Recognised as a liability - total | 2.1 | 0.8 |
As at 30 April 2020, the group and Company leased properties, vehicles and certain office equipment with a carrying amount of £1.8m, as set out in note 17. Lease expiry dates range from less than 12 months to 9 years.
As the group and Company had no finance leases in the prior year, no lease liabilities were included in borrowings until 1 May 2019. See note 2 for an explanation of how lease liabilities were recognised on 1 May 2019 in the process of adopting IFRS 16 and for further information about the change in accounting policy for leases.
Future lease liabilities in respect of low-value leases not accounted for under IFRS 16 are immaterial.
Capital commitments approved by the Board and existing at 30 April 2020 amounted to £nil (2019:£nil). Total commitments under non- cancellable operating leases under IAS 17 as at 30 April 2019 were as follows:
2019 | ||||
GROUP | ||||
Land and | ||||
buildings | Other | |||
£m | £m | |||
Payable | ||||
Within one year | 1.5 | 0.1 | ||
In the second to fifth years | ||||
2.5 | 0.1 | |||
After five years | 0.3 | - | ||
4.3 | 0.2 | |||
2019 | ||||
COMPANY | ||||
Land and | ||||
buildings | Other | |||
£m | £m | |||
Payable | ||||
Within one year | ||||
0.5 | - | |||
In the second to fifth years | 1.0 | - | ||
After five years | ||||
- | - | |||
1.5 | - | |||
Purplebricks Annual Report and Accounts 2020 87
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
23. Notes to the cashflow statement
GROUP | COMPANY | ||||||
Cash and cash equivalents are represented by: | |||||||
2020 | 2019 | 2020 | 2019 | ||||
£m | £m | £m | £m | ||||
Cash at bank and on deposit with instant availability | |||||||
10.7 | 14.0 | 7.7 | 8.8 | ||||
Cash on deposit available within 35 days' notice | 10.1 | 46.1 | 10.1 | 46.1 | |||
Cash on deposit available at between 36 and 100 days' notice | |||||||
10.2 | 2.7 | 10.2 | 2.7 | ||||
31.0 | 62.8 | 28.0 | 57.6 | ||||
Cash and cash equivalents comprise cash and short-term bank deposits with a maturity of up to 100 days. The carrying amount of these assets is approximately equal to their fair value.
Changes in liabilities arising from financing activities
The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's consolidated cash flow statement as cash flows from financing activities.
GROUP | Lease liabilities | Repayment | At 30 | ||||||
At | recognised on | ||||||||
1 May | adoption of | Lease | Repayment | New | of | April | |||
2019 | IFRS 16 | New leases | modifications | of leases | borrowings | borrowings | 2020 | ||
£m | £m | £m | £m | £m | £m | £m | £m | ||
Borrowings (see note 21) | - | - | - | - | - | 0.3 | (0.1) | 0.2 | |
Lease liabilities (see note 2.4.1) | - | 2.3 | 0.7 | - | (0.9) | - | - | 2.1 | |
Total liabilities from financing activities | - | 2.3 | 0.7 | - | (0.9) | 0.3 | (0.1) | 2.3 | |
COMPANY | Lease liabilities | ||||||||
At | At 30 | ||||||||
recognised on | |||||||||
1 May | adoption of | Lease | Repayment | April | |||||
2019 | IFRS 16 | New leases | modifications | of leases | 2020 | ||||
£m | £m | £m | £m | £m | £m | ||||
Lease liabilities (see note 2.4.1) | - | 0.8 | 0.1 | 0.1 | (0.2) | 0.8 | |||
Total liabilities from financing activities | - | 0.8 | 0.1 | 0.1 | (0.2) | 0.8 | |||
Finance expense in respect of losses on derecognition of financial assets is a non-cash item. See note 2.25
There were no lease liabilities or borrowings as of 30 April 2019.
24. Share capital | 2020 | 2019 | ||
Number | Nominal value | £m | £m | |
Allotted, authorised, issued and fully paid | ||||
Class: | ||||
Ordinary | 306,806,039 | £0.01 | 3.1 | 3.0 |
3.1 | 3.0 | |||
During the year the Company issued a total of 3,715,692 shares of £0.01 each, for total consideration of £76,000. (2019: 1,247,338 shares of £0.01 each, for total consideration of £964,000).
The table below summarises the movements of the number of shares at the beginning and end of the year
Ordinary shares | |
Ordinary shares at 1 May 2019 | 303,090,347 |
Shares issued during the year | 3,715,692 |
Ordinary shares at 30 April 2020 | |
306,806,039 | |
88 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
25. Share premium
£m | |
Balance at 1 May 2018 | 176.4 |
Premium arising on issue of shares in satisfaction of share options | 1.0 |
Balance at 30 April and 1 May 2019 and at 30 April 2020 | |
177.4 | |
26. Reserves
Share-based payment reserve
The share-based payment reserve represents all current and prior period share-based payment charges less amounts transferred to retained earnings on exercise of share options.
Retained earnings
Retained earnings includes all current and prior period retained profits and losses.
Share premium
The amount paid to the Company by shareholders, in cash or other consideration, over and above the nominal value of shares issued to them.
Foreign exchange reserve
The foreign exchange reserve records exchange differences arising from the translation of the financial statements of foreign operations. Upon disposal of foreign operations, the related accumulated exchange differences are recycled to the income statement.
27. Financial instruments
Capital risk management
Capital management objectives are to ensure the Company's ability to continue as a going concern and to provide a return to shareholders.
The capital structure of the Company currently consists of cash and equity attributable to equity holders of the Company, comprising issued capital, reserves and retained earnings as disclosed in the statement of changes in equity. The Company's Audit Committee reviews the capital structure as part of its risk analysis.
The Company is not subject to externally imposed capital requirements.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
- Cash and cash equivalents
- Trade and other receivables
- Trade and other payables
The Group held the following financial assets at each reporting date:
GROUP | COMPANY | ||||||
2020 | 2019 | 2020 | 2019 | ||||
£m | £m | £m | £m | ||||
Financial assets held at amortised cost | |||||||
Trade and other receivables | 6.8 | 6.2 | 3.2 | 0.6 | |||
Amounts owed by group undertakings | - | - | 6.0 | 1.4 | |||
Accrued income | |||||||
5.3 | 9.7 | 5.3 | 8.2 | ||||
Cash and cash equivalents | 31.0 | 62.8 | 28.0 | 57.6 | |||
43.1 | 78.7 | 42.5 | 67.8 | ||||
Purplebricks Annual Report and Accounts 2020 89
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
The Group held the following financial liabilities at each reporting date: | |||||||
GROUP | COMPANY | ||||||
2020 | 2019 | 2020 | 2019 | ||||
£m | £m | £m | £m | ||||
Financial liabilities held at amortised cost | |||||||
Trade payables | |||||||
3.2 | 11.3 | 2.3 | 7.0 | ||||
Other taxation and social security | 1.8 | 2.4 | 0.9 | 0.9 | |||
Other creditors | 1.4 | 0.2 | - | 0.1 | |||
Accruals | 5.4 | 11.1 | 4.9 | 5.5 | |||
Lease liabilities | |||||||
2.1 | - | 0.8 | - | ||||
Borrowings | 0.2 | - | - | - | |||
14.1 | 25.0 | 8.9 | 13.5 | ||||
Fair value of financial instruments
Carrying value of the instruments in the financial assets and financial liabilities tables approximates to their fair value.
During part of the prior year it was the policy of the Group to enter into USD and AUD forward foreign exchange contracts to manage currency risk in relation to the Group's cash funding requirements for its US and Australian subsidiaries. Derivatives were not designated in hedge relationships.
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
Financial risk management
The Group is exposed through its operations to the following financial risks:
- Liquidity risk
- Interest rate risk
- Credit risk
- Foreign currency risk
The Group's policies for financial risk management are outlined below.
Liquidity risk management
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk by maintaining adequate cash reserves and by monitoring forecast and actual cash flows to ensure cash is available to meet financial liabilities as they fall due. Sufficient cash is retained in immediate access accounts whilst cash which is surplus to short-term requirements is deposited in notice accounts. Sensitivities are applied to cash forecasts to ensure the Company has early warning of any manifestation of liquidity risk.
The following is an analysis of the contractual undiscounted cash flows payable under financial liabilities excluding derivatives which are disclosed in note 22. The table includes principal only cash flows in respect of trade and other payables.
90 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
2020 GROUP | |||||||
Financial liabilities held at | Within | 1 to | 3 months | 1 to 2 | 2 to 5 | More than | |
amortised cost | Total | ||||||
1 month | 3 months | to 1 year | years | years | 5 years | ||
£m | £m | £m | £m | £m | £m | £m | |
Trade payables | 2.6 | 0.6 | - | - | - | - | 3.2 |
Other taxation and social security | 1.8 | - | - | - | - | - | 1.8 |
Other creditors | 0.7 | 0.7 | - | - | - | - | 1.4 |
Accruals | 2.7 | 2.7 | - | - | - | - | 5.4 |
Lease liabilities | 0.1 | 0.2 | 0.4 | 0.6 | 0.6 | 0.2 | 2.1 |
Borrowings | - | - | 0.1 | - | 0.1 | - | 0.2 |
7.9 | 4.2 | 0.5 | 0.6 | 0.7 | 0.2 | 14.1 | |
2019 GROUP | |||||||
Financial liabilities held at | Within | 1 to | 3 months | 1 to 2 | 2 to 5 | More than | |
amortised cost | |||||||
1 month | 3 months | to 1 year | years | years | 5 years | Total | |
£m | £m | £m | £m | £m | £m | £m | |
Trade payables | 8.5 | 2.8 | - | - | - | - | 11.3 |
Other taxation and social security | 1.8 | 0.6 | - | - | - | - | 2.4 |
Other creditors | 0.2 | - | - | - | - | - | 0.2 |
Accruals | 8.3 | 2.8 | - | - | - | - | 11.1 |
Lease liabilities | - | - | - | - | - | - | - |
Borrowings | - | - | - | - | - | - | - |
18.8 | 6.2 | - | - | - | - | 25.0 | |
2020 COMPANY | |||||||
Financial liabilities held at | Within | 1 to | 3 months | 1 to 2 | 2 to 5 | More than | |
amortised cost | Total | ||||||
1 month | 3 months | to 1 year | years | years | 5 years | ||
£m | £m | £m | £m | £m | £m | £m | |
Trade payables | 1.2 | 1.1 | - | - | - | - | 2.3 |
Other taxation and social security | 0.9 | - | - | - | - | - | 0.9 |
Other creditors | - | - | - | - | - | - | - |
Accruals | 2.5 | 2.4 | - | - | - | - | 4.9 |
Lease liabilities | - | 0.1 | 0.2 | 0.3 | 0.2 | - | 0.8 |
Borrowings | - | - | - | - | - | - | - |
4.6 | 3.6 | 0.2 | 0.3 | 0.2 | - | 8.9 | |
2019 COMPANY | |||||||
Financial liabilities held at | Within | 1 to | 3 months | 1 to 2 | 2 to 5 | More than | |
amortised cost | |||||||
1 month | 3 months | to 1 year | years | years | 5 years | Total | |
£m | £m | £m | £m | £m | £m | £m | |
Trade payables | 5.2 | 1.8 | - | - | - | - | 7.0 |
Other taxation and social security | 0.7 | 0.2 | - | - | - | - | 0.9 |
Other creditors | 0.1 | - | - | - | - | - | 0.1 |
Accruals | 4.1 | 1.4 | - | - | - | - | 5.5 |
Lease liabilities | - | - | - | - | - | - | - |
Borrowings | - | - | - | - | - | - | - |
10.1 | 3.4 | - | - | - | - | 13.5 | |
Purplebricks Annual Report and Accounts 2020 91
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
Interest rate sensitivity analysis
Interest rate risk is the risk that the value of the future cash flows of a financial instrument will fluctuate due to changes in market rates. At the year end date there was no material exposure to movement in interest rates.
Credit risk management
Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group's credit risk is primarily attributable to its trade receivables.
Trade receivables across the Group have been assessed with regard to credit risk characteristics which vary from country to country and according to the nature of the counterparty. The Group also considers days past due in making this assessment as well as historical credit losses experienced within over a period of 12 month before 30 April 2020.
The expected loss rates derived from this assessment are adjusted to reflect current and forward-looking information affecting the ability of the customers to settle the receivables.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables which are not subject to the receivable sale arrangement described below.
In order to manage both liquidity requirements and credit risk in the UK, the Group operates committed facilities with a third party finance house, whereby customer receivables in respect of customers who utilise the Group's "pay later" option are sold immediately to the finance house. The Group has assessed the credit risk of the counterparty as low. See note 2.20 for further details.
Outside of the UK, the Group does not sell on its receivables and therefore bears credit risk and needs to assess expected credit losses.
The credit risk on liquid funds is minimised because the counterparties are UK banks with high credit-ratings assigned by international credit-rating agencies.
Foreign currency risk management
A significant part of the Group's transactions are carried out in pound sterling (GBP). Exposures to currency exchange rates arise from the Group's trading activity carried out by its overseas operations, which is primarily denominated in Canadian dollars (CAD). The Company holds CAD denominated loans with its Canadian subsidiary arising from intercompany recharges. Loans to the Company's US and Australia subsidiaries have been impaired in full.
To mitigate the Group's exposure to foreign currency transaction risk, planned non-GBP funding requirements in relation to its non-UK subsidiaries are monitored and forward foreign exchange contracts are entered into in relation to those expected cashflows. The Group does not enter into forward exchange rate contracts to mitigate the exposure to foreign currency translation risk on the carrying value of its non-GBP loan receivables. The loans carry a commercial rate of interest. Additionally, the Group does not hedge translation risk in relation to the financial statements of its overseas subsidiaries.
Foreign currency denominated financial assets and liabilities which expose the Group to currency risk are disclosed in the table below. The sensitivity of profit with regard to the Group's financial assets and financial liabilities and the AUD/GBP, USD/ GBP and CAD/GBP exchange rates is also disclosed.
The table below sets out assets and liabilities held in foreign currencies and the impact in GBP of changes in the respective foreign exchange rates. The assumed percentage changes in AUD/GBP, USD/GBP and CAD/GBP exchange rate are determined based on historical market volatility and estimates of potential future volatility.
30 April 2020 | AUD | USD | CAD | AUD | US | CAD |
$m | $m | $m | +/- 10% (£m) | +/- 7% (£m) | +/- 10% (£m) | |
Trade and other receivables | - | - | 8.1 | - | - | 0.5 |
Cash and cash equivalents | - | - | 4.3 | - | - | 0.2 |
Trade and other payables | - | - | (16.5) | - | - | (0.9) |
- | - | (4.1) | - | - | (0.2) | |
30 April 2019 | AUD | USD | CAD | AUD | US | CAD |
$m | $m | $m | +/- 10% (£m) | +/- 7% (£m) | +/- 10% (£m) | |
Trade and other receivables | 3.9 | 1.6 | 6.8 | 0.2 | 0.1 | 0.4 |
Cash and cash equivalents | 2.4 | 2.9 | 2.0 | 0.1 | 0.2 | 0.1 |
Trade and other payables | (4.2) | (5.4) | (10.3) | (0.2) | (0.3) | (0.6) |
2.1 | (0.9) | (1.5) | 0.1 | - | (0.1) | |
Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the group's exposure to currency risk as at 30 April 2020.
92 Purplebricks Annual Report and Accounts 2020
Financial Statements
NOTES TO THE FINANCIAL STATEMENTS continued
28. Related party transactions
Related party transactions occur as a result of funding provided to the wholly owned subsidiaries for the purposes of marketing and support from the UK.
Company - balances with subsidiary undertakings | ||
Trade receivables | 2020 | 2019 |
£m | £m | |
Purplebricks Australia PTY Limited | - | 30.0 |
Provision | - | (30.0) |
Purplebricks Inc. | ||
- | 44.3 | |
Provision | - | (44.3) |
BFL Property Management Limited | ||
- | 0.2 | |
DuProprio Inc. | 6.0 | 1.2 |
During the year Purplebricks Group plc lent £5.2m to Purplebricks Australia PTY Limited (2019: £22.6m) and £4.6m to Purplebricks Inc (2019: £35.7m). These amounts were to allow these companies to conduct the orderly closure of their operations. During the year, amounts owed by Purplebricks PTY Limited were forgiven and written off in the books of the Company. Amounts owed by Purplebricks Inc (net of provisions already held) were capitalised into cost of investment and written off.
During the year, the Company provided management services to Canada which have been recharged. Funding to support expansion outside of Quebec has also been provided. Movements in the balance with BFL relate to intra-group cash sweeps. BFL Property Management Limited repaid £0.2m in the year.
The background to the provisions held against intercompany balances is set out in note 18.
During the year Isabel Bruce, a person closely associated with Michael Bruce, received salary and taxable benefits of £26,000 (2019: £11,000).
In August 2019, the Group made an investment of €5.0m (£4.6m) into to its related party Einhundertsiebte "Media" Vermogensverwaltungsgesellschaft bmH ("JV HoldCo"), a company incorporated in Germany in which the Group holds a 50% stake and which the Group operates as a joint venture together with its related party Axel Springer SE, an entity closely associated with Dr. Stephanie Caspar, a Non-executive Director of Purplebricks. JV HoldCo has subsequently made further investments into Homeday which have given JV HoldCo control over Homeday. See note 19 for more detail.
Axel Springer SE, an entity closely associated with Dr. Stephanie Caspar, Non‐executive Director, purchased 43,662,417 shares on 3 June 2019 at £1.00 per share.
Directors' remuneration and key management personnel disclosures can be found in note 9.
6.01.4
29. Commitments
Capital commitments, approved by the Board and existing at 30 April 2020 amounted to £nil (2019: £nil).
30. Ultimate controlling party
There is no ultimate controlling party as no one investor has a majority shareholding
31. Post balance sheet event
Sale of Canadian business
On 15 July 2020 the Group completed the sale of its Canadian business, being all Canadian subsidiaries and the entire Canada segment, to the Desjardins Group, a Canadian cooperative financial group. Headline consideration was $60.5m Canadian Dollars (£35m) adjusted for working capital and debt, to be verified in line with completion accounts in due course. Part of the proceeds were allocated to the repayment of intra-Group debt owed to Purplebricks Group plc.
The recovery of the non-current intercompany balance shortly post year end is a non-adjusting post balance sheet event.
Purplebricks Annual Report and Accounts 2020 93
Company Information
Directors
Paul Pindar, Chairman
Vic Darvey, Chief Executive Officer (appointed 7 May 2019) Andy Botha, Chief Financial Officer (appointed 11 May 2020) Simon Downing, Senior non-executive director
Adrian Blair, non-executive director
Dr Stephanie Caspar, non-executive director (appointed 27 July 2020)
Registered office
Suite 7, Cranmore Place, Cranmore Drive, Shirley, Solihull, West Midlands B90 4RZ, United Kingdom
Registered number
08047368
Auditor
Deloitte LLP, Four Brindleyplace, Birmingham B1 2HZ
Nominated advisor
Zeus Capital Ltd, 10 Old Burlington Street, London W1S 3AG
Co-brokers
Citigroup Global Markets Limited, Citigroup Centre, 33 Canada Square, London E14 5LB,
Peel Hunt LLP, Moor House, 120 London Wall, London EC2Y 5ET
Solicitor
Norton Rose Fulbright LLP, 3 More London Riverside, London SE1 2AQ
Registrar
Link Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU
Board members' photography by Matt Leete. mattleete.com
Purplebricks is committed to the environmental issues reflected in this Annual Report. The cover is printed on Fedrigoni Symbol digital satin and the text pages on Condat digital silk which are FSC certified and ECF (Elemental Chlorine Free) from a FSC chain-of-custody certified mill. Printed in the UK by PSW Paper & Print Ltd.
www.fsc.org
FSC A000531
The mark of responsible forestry
94 Purplebricks Annual Report and Accounts 2020
Purplebricks Group plc,
Suite 7, Cranmore Place, Cranmore Drive, Shirley, Solihull, West Midlands B90 4RZ United Kingdom
Company number 08047368 investors@purplebricks.com
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Purplebricks Group plc published this content on 03 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 03 August 2020 15:41:07 UTC