OTMP.L Regulatory News (OTMP)

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

13 October 2020

ONTHEMARKET PLC

("OnTheMarket", "OTM", the "Group" or the "Company")

INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 JULY 2020

CONTINUED OPERATIONAL PROGRESS WITH CLEAR STRATEGY FOR GROWTH

OnTheMarket plc (AIM: OTMP), the majority agent-owned company which operates the OnTheMarket.com property portal, today announces its unaudited interim results for the six months ended 31 July 2020 ("H1 20/21").

Highlights

· Revenue and ARPA up 28% and 15% respectively, despite COVID-19 related customer support discounts of £1.8m and the curtailment of contract conversion activity.

· Group achieves profitability as a result of measures implemented to reduce costs and conserve cash. In particular, marketing expenditure was down 67% to £2.2m (H1 19/20: £6.6m).

· Strong balance sheet with period-end net cash of £9.8m and, excluding deferred creditor payments of £2.0m, no borrowings (31 January 2020: £8.7m and deferred creditors of £0.7).

· Agency branches listed at 31 July 2020 remain robust, despite COVID-19 giving rise to some cancellations and office closures.

· 1,512 new home developments listed following the launch of the new homes offering in September 2019.

· Traffic and lead growth impacted by the COVID-19 lockdown restrictions, which effectively suspended UK housing market activity.

· As lockdown restrictions were effectively lifted, year-on-year visits in July 2020 increased 173% to 27.5m and average leads per advertiser increased 56% to 148.

Post period end strategic and operational highlights:

· At 30 September 2020, the Group had almost 3,800 estate and letting agents as shareholders, or under contract to become shareholders, operating 6,800 offices between them.

· Targeted, data-driven approach to resumption of marketing investment to support consumer engagement and lead generation for advertisers.

· Continued growth in new home development listings with the addition of Taylor Wimpey plc's developments to the portal, joining other leading housebuilders including Barratt Developments PLC, Persimmon Plc and Bellway plc; seven of the 10 largest housebuilders now list at OnTheMarket.

· Strong cost and cash management maintained. As at 30 September 2020, the Group had net cash of £10.3m and, excluding deferred creditor payments of £2.0m, no borrowings.

· Assuming the UK housing market remains open and active, the Group expects revenues and costs to increase from H1 20/21 levels in the second half year to 31 January 2021, as it invests to enhance service and increase value to customers. The Group expects to achieve a broadly breakeven adjusted operating profit position for the full financial year.

· Following the departure of Ian Springett in March 2020, Jason Tebb has been appointed as Chief Executive Officer, with effect from 14 December 2020.

Clive Beattie, Acting Chief Executive Officer of OnTheMarket plc, commented:

"We started the year strongly with trading in February and the first half of March in line with management expectations. However, the first half of the financial year quickly became dominated by the impact of the COVID-19 pandemic.

"Our focus during the period has been to safeguard employee well-being, provide value and support to our agent and housebuilder customers and to manage costs and conserve cash.

"We have been particularly pleased with the strong consumer engagement with the portal since the easing of national lockdown restrictions in May, with record leads indicating that those consumers most active in the property market visit OnTheMarket.com.

"We continue to believe that our differentiated proposition, with agents at the heart of our strategy as both customers and majority shareholders, provides a strong foundation for future growth. Whilst we remain cautious amidst the ongoing uncertainty associated with the COVID-19 pandemic, the actions we have taken, and the demonstrable value we provide our agent customers, gives me continued confidence in the future success of the Company.

"I thank all my colleagues for their hard work during what have been unprecedented and extremely challenging times. Their professionalism and dedication has enabled us to continue to deliver value for all of our stakeholders."

Footnotes

1) Adjusted operating loss or profit is defined as operating loss or profit before share based payments (including charges relating to shares issued for agent recruitment), share of profit or loss from associates, specific professional fees and non-recurring items. This is an alternative performance measure and should not be considered an alternative to IFRS measures, such as revenue or operating loss or profit. Please see the Financial Review and Key Performance Indicators section below for a reconciliation of operating loss / profit to adjusted operating loss / profit.

2) Period-end net cash in the 2019 column is net cash at 31 January 2020. Net cash at 31 July 2019 was £8.8m.

3) Average revenue per property advertiser, being revenues due from property advertisers for a period divided by the number of property advertisers for that period. ARPA presented herein is the average of the monthly ARPAs for the period unless otherwise stated. A property advertiser is a listed agency branch or a new home development advertising on OnTheMarket.com.

4) Advertisers are either estate and lettings agent branches or new home developments listed at OnTheMarket.com.

5) Visits comprise individual sessions on OnTheMarket's web based portal or mobile applications by users for the period indicated as measured by Google Analytics.

6) Unless otherwise stated, all figures refer to the six months ended 31 July 2020 and comparative figures are for the six months ended 31 July 2019 ("H1 19/20").

Background on OnTheMarket:

OnTheMarket plc, the majority agent-owned company which operates the OnTheMarket.com property portal, is a leading UK residential property portal provider.

Its objective is to create value for shareholders and property advertiser customers by delivering an agent-backed, technology enabled portal - offering a first-class service to agents and new homes developers at sustainably fair prices and becoming the go-to portal for serious property-seekers.

With almost 3,800 estate and letting agents as shareholders, or under contract to become shareholders, operating 6,800 offices, OnTheMarket provides a unique opportunity for agents to participate in the equity value of their own portal. Agent backing and support enable OnTheMarket to display "New & exclusive" properties to serious property-seekers 24 hours or more before agents release these properties to other portals.

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. There are a number of factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. The Group undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations.

Acting Chief Executive Officer's Report

The period began in line with management expectations, however it was dominated by the onset of the COVID-19 pandemic and associated public health restrictions, which had a profound impact on the UK residential property market. As previously announced, the Group took a number of measures to safeguard employee well-being, provide value and support to agent and housebuilder customers and to manage costs and conserve cash. These measures have proved effective and positioned the Group well for the future.

In particular, the Group acted decisively before the formal lockdown restrictions came into place to support customers through this period of uncertainty by offering full-tariff listing agreement discounts. Accordingly, revenue growth in the period was tempered by these discounts, which amounted to £1.8m, as well as by the suspension of activity to convert agents on short-term, introductory free of charge contracts to paying contracts. Despite these actions, revenues were up 28% versus the previous half year.

The measures that were implemented to reduce costs and conserve cash proved effective. The Group achieved an adjusted operating profit of £0.8m (H1 19/20; adjusted operating loss of £6.7m). This includes a reduction of £0.5m in staff costs, which arose from the utilisation of the Coronavirus Job Retention Scheme and from voluntary pay waivers by staff, and from a reduction in marketing expenditure, which was down 67% to £2.2m (H1 19/20: £6.6m) in the period. However, it excludes £0.3m of government grant income received under the Coronavirus Job Retention Scheme, which is treated as a non-recurring item. Adjusted EBITDA (being adjusted operating profit / (loss) before depreciation and amortisation) was a profit of £2.1m (H1 19/20: loss of £5.6m) and the Group achieved a profit after tax of £0.7m (H1 19/20: loss of £7.0m).

Following the easing of national lockdown restrictions in May 2020, and despite a substantial reduction in advertising expenditure, consumer engagement with OnTheMarket.com has been very strong and the record leads we have achieved indicate to us that those consumers most active in the property market visit our portal. We believe that our "New & exclusive" properties, which sees many agents choose to list properties on the site in advance of listing them on Rightmove or Zoopla, together with properties of agents listing exclusively with OnTheMarket help attract motivated property-seekers, who in turn deliver value to our advertiser customers through the provision of high-quality leads.

During the period, we were also pleased to welcome further agents as shareholders in the Company. Agents remain at the core of our strategy, as demonstrated by the discounts we quickly offered to customers to help mitigate the impact of COVID-19 on their businesses. However, more than just a short-term response, we believe our unique offering, combining agent ownership with a long-term commitment to sustainably fair pricing, sets us apart in the portals space. We look forward to working further with agents to provide them with a valued, competitive service and we are grateful to all those supporting us as customers and shareholders.

At 30 September 2020, the Group had almost 3,800 estate and letting agents as shareholders, or under contract to become shareholders, operating 6,800 offices between them

On 9 March 2020 the Group announced the departure of Ian Springett, then Chief Executive Officer. On 1 September 2020, the Group was pleased to announce the appointment of Jason Tebb as Chief Executive Officer. Jason will start on 14 December 2020, bringing extensive property and estate agency experience across digital and physical markets, having been Group COO of Ultimate Holdings for the last three years, a group of companies, specialising in property investment and finance, property management, property development and property technology. Prior to this, Jason successfully launched, scaled and exited Ivy Gate, an estate and letting agency, was a Regional Managing Director at Main Market listed LSL Property Services plc for three years and held senior management positions at agents Chestertons Limited and Foxtons Group plc.

Operational Review

COVID-19 gave rise to unique and unprecedented operational challenges during the period and it was far from "business as usual".

The restrictions imposed by Government in response to the COVID-19 pandemic all but closed the UK housing market, placing substantial stress on the businesses of our customers. Whilst the Group sought to provide them support through discounts, nevertheless the impact led to some agency closures and customer cancellations, as customers were forced to reduce their costs in the face of the uncertainty that existed at that time. The various Government support schemes played an essential role in easing the financial burden on businesses and we, like many of our customers, utilised the Coronavirus Job Retention Scheme, without which there would very likely have been a significant number of redundancies.

As the full lockdown restrictions were eased in May and the UK housing market reopened, agents and new homes builders saw extremely high levels of activity. The combination of demand built up during lockdown and before, a reassessment of housing wants and needs by many of the British public and the stamp duty relief introduced by the Chancellor led to significant activity in the later part of the half-year period to 31 July 2020 and beyond. This activity undoubtedly eased the financial pressure our customers were under.

In a further response to COVID-19, the Group choose to suspend conversion activity in order to support agents given the financial stress and uncertainty that weighed on their businesses. However, the implications of the pandemic have given rise to an increased focus on portal costs and ownership within the estate agency industry, with many agents expressing their attraction to our differentiated proposition and majority agent ownership. In response, we introduced new full-tariff contracts, albeit with an initial free listing period to September 2020 to provide support whilst the market recovered, which offered agents shares alongside their listing agreements. As at 31 July 2020, 581 branches were contracted under these new agreements.

New homes advertiser numbers continued to grow strongly through the period, with 1,512 developments listed at 31 July 2020, up 69% from 894 at 31 January 2020, momentum which continued after the period-end with the addition of Taylor Wimpey's new home developments to the portal. Our objective is to deliver housebuilders increasing value through access to highly-motivated property seekers and the delivery of incremental high quality leads.

Whilst traffic and leads were lower in the months of March, April and May due to the effective suspension of the UK residential housing market, they were otherwise very strong, indicating high levels of consumer engagement amongst the property-active public.

For the six month period overall, visits were down only 3% at 116.6m (H1 19/20: 120.7) and average leads per advertiser per month were up 12% to 105 (H1 19/20: 94). In July 2020, as property-market activity increased, visits were up 173% year-on-year at 27.5m and average leads per advertiser were up 56% year-on-year at 148.

Litigation

On 13 March 2020, the Group was pleased to announce that it had reached an out of court settlement between Agents' Mutual Limited and Gascoigne Halman Limited and Connells Limited. The agreement ended all litigation proceedings between the parties.

Post period-end developments

Having quickly taken the necessary actions to safeguard employees and support customers as the pandemic took hold, the Group focussed on actions to allow it to emerge from the crisis in a strong position to grow the business for the benefit of all stakeholders.

Whilst the long-term implications of the COVID-19 pandemic are not yet known, it has become clear that some of the changes to our way of life and to business practices will undoubtedly continue for some time. In order to adapt to the new way of working, the Group undertook a review of its operating practices and procedures. This review unfortunately led to a limited number of redundancies, but will allow OnTheMarket to operate efficiently whilst maintaining high levels of service for advertisers and consumers.

The Group continued to offer discounts to customers during August and September, totalling a further £0.8m. As the UK residential housing market has reopened, we have begun to engage with those customers on free listing agreements to ask them to support our majority-agent owned portal by signing up to a paying contract. With very competitive rates offering excellent value for money and a choice of contracts, from full-tariff contracts with associated share issuance to shorter-term, discounted contracts, we believe it is essential that agents act over the coming months to introduce genuine competition into the portals market by supporting OnTheMarket. Activity in the housing market has rebounded strongly, but with future uncertainty over the macro-economic environment, the COVID-19 pandemic has brought into focus the need for a portal with the interests of its customers at its core and one committed to sustainably fair pricing. Whilst the Group believes it is now appropriate to remove firms who have listed under free introductory contracts, which were effectively extended through lockdown, the Group will continue to engage with them over the coming months, asking them to consider the value for money OnTheMarket offers, alongside the opportunity to become shareholders in the majority-agent owned portal, and to rejoin under paying contracts. OnTheMarket has achieved strong consumer engagement and it is equitable that only paying agents benefit from the leads and services it provides.

Growth in the number of branches under paying contracts remains key to the Group's ongoing success and supports increased investment in service, marketing and product development, to the benefit of all our agent customers and shareholders.

In our new homes segment we have seen continued growth and were pleased to reach a listing agreement with Taylor Wimpey plc, one of the UK's largest housebuilders. We now have 7 of the largest 10 UK housebuilders listing on OnTheMarket.com, including Barratt Developments PLC, Persimmon Plc and Bellway plc.

Agency branches listed at 30 September 2020 remain robust, despite COVID-19 giving rise to some cancellations and office closures. The Group has also started to remove agents who have come to the end of their introductory free listing and chose not to enter a paying contract.

As at 30 September 2020, the Group had:

· 13,472 total advertisers listed, comprising 11,799 agency branches and 1,673 new homes developments; and

· over 9,400 agency branches under paying contracts, including c3.5k branches on discounted rates.

Traffic and leads have remained strong in August and September, with visits averaging over 26m and leads over 1.9m. To support our customers we have begun to increase our investment in marketing, albeit we remain focussed on the need to manage our costs and conserve cash as far as possible given the uncertain economic outlook.

As well as targeted investment in traditional marketing activities, following a review of our marketing strategy we have also begun trialling new approaches to data analysis which are designed to improve the effectiveness of our consumer advertising and hence continue to increase the quantity and quality of our leads to customers. This will represent an area of ongoing investment which we hope will provide meaningful results in the months ahead.

Outlook 

The Group's strategy is to provide a first-class property listings service for property advertisers and property seekers alike. As consumers have become increasingly engaged with our portal, we are delivering high numbers of good quality leads to our customers at very competitive rates.

Our objective now is to continue to grow the number of paying advertisers by working with agents and housebuilders and encouraging them to support the portal. Being majority agent owned and with our customers' interests at the core of our strategy, we look forward to providing an ever-improving service and product range to support that mission.

As at 30 September 2020, the Group had net cash of £10.3m and, excluding deferred creditor payments of £2.0m, no borrowings.

Cash balances will naturally fluctuate as creditor and tax payments fall due, but the Company has continued to take a disciplined approach to managing its cost base and cash position, including through a significant reduction in marketing expenditure from late March 2020 to 30 September 2020. Cost management remains a focus for the Group going forward.

Assuming the UK housing market remains open and active, the Group expects revenues and costs to increase from H1 20/21 levels in the second half year to 31 January 2021, as it invests to enhance service and increase value to customers. The Group expects to achieve a broadly breakeven adjusted operating profit position for the full financial year.

The operational and financial progress that the Group has delivered both during the period and since the period end, in the face of very challenging market conditions, is a testament to the strength of our offering and the value we deliver for our customers. Whilst the Board remains cautious about the macro-economic environment, we remain confident that the actions we have taken to steer the business through some of the most difficult housing market conditions in recent memory have positioned the Group well for future growth.

I thank all my colleagues for their hard work during what have been unprecedented and extremely challenging times. Their professionalism and dedication has enabled us to continue to deliver value for all of our stakeholders.

Clive Beattie

Acting Chief Executive Officer

Financial Review and Key Performance Indicators

Financial review 

Revenue for the period was up 28% at £10.2 million (6 months to 31 July 2019: £8.0 million) despite COVID-19 related customer support discounts of £1.8m and the curtailment of contract conversion activity.

The reported operating profit of the Group was £0.7m (6 months to 31 July 2019: loss of £7.2 million) and is further analysed as follows:

The basic and diluted profit per share in the period were 0.94p and 0.85p respectively (H1 19/20: basic and diluted loss per share 11.16p).

The Group ended the period with cash of £9.8 million and, excluding deferred creditor payments of £2.0m, no borrowings (31 January 2020: £8.7 million and deferred creditors of £0.7).

Revenue and ARPA by operating segment

Following the launch of the Group's new homes segment in September 2019, the Group reports revenues separately across its main operating segments, namely products and services offered to:

· the agency segment, comprising estate and letting agents;

· the new homes segment, comprising new home developers; and

· the other income segment, comprising non-property advertising income.

Costs are not analysed by segment.

Operational KPIs

Group operational KPIs were as follows:

· Agency branches listed at 31 July 2020 were marginally lower year-on-year, with cancellations and office closures higher than usual during lockdown.

· ARPA was £124, reflecting the growing number of agents under paying contracts in the period, offset by customer discounts offered in response to the COVID-19 pandemic (FY 19/20: £108).

· Visits were 116.6 million (H1 19/20: 120.7 million), reflecting a decline in visits during the months of March to May 2020 during which the national lockdown was in place. In July 2020 visits were up 173% year-on-year at 27.5m.

· Average monthly leads per advertiser were 105 (H1 19/20: 94), reflecting engagement with property-active consumers. In July 2020, average leads per advertiser were 148, up 56% year-on-year.

The Group's financial performance is presented in the Condensed Consolidated Income Statement below. The profit for the period attributable to the owners of the Group was £0.7m (H1 19/20: loss of £7.0m).

Administrative expenses have decreased by £5.4m to £9.4m in the period to 31 July 2020 (6 months to 31 July 2019: £14.8m). This movement is primarily as a result of cost reduction measures implemented during the COVID-19 pandemic. In particular, the Group benefitted from a reduction of £0.5m in staff costs during the period, which arose through utilisation of the Coronavirus Job Retention Scheme and from voluntary pay waivers by staff, and marketing expenditure was down 67% to £2.2m (H1 19/20: £6.6m).

A charge of £0.4m (H1 19/20: £0.3m) was incurred in relation to share-based employee incentives and the movement in the expected future employer's national insurance charge based on the period-end share price.

The litigation with Gascoigne Halman Limited and Connells Limited was settled in the period. Compensation received net of professional fees incurred was £1.0m (H1 19/20: £0.2m). Further details are set out in note 6.

A share-based agent recruitment charge of £0.6m (H1 19/20: £0.3m) was incurred in relation to the issue of shares to agents alongside signing new long-term listing agreements, in line with the Group's strategy to grow the agent shareholder base. Further details on these charges and on share options awarded, exercised and forfeited are set out in note 10.

The Group incurred costs of £0.3m in relation to Ian Springett's termination and of £0.1m in relation to the search for a new permanent Chief Executive Officer. Further details are set out in note 6.

Intangible assets increased to £4.8m (31 January 2020: £4.7m), due to the capitalisation of expenditure on development activities in relation to the OnTheMarket.com portal.

Receivables fell to £5.1m as at 31 July 2020 (31 January 2020: £6.1m), mainly as a result of the release in the period of prepayments previously recognised for agent shares issued.

Trade and other payables fell to £5.7m as at 31 July 2020 (31 January 2020: £6.8m). The fall was mainly as a result of a reduction in marketing costs owing at the period end and a reduction in the deferred consideration owed to Glanty Limited, offset by an increase in deferred creditors to £2.3m (31 January 2020: nil). In particular, payment of some PAYE, NICs and VAT owed to HMRC have been deferred as part of the measures the government introduced to assist companies in dealing with the impact of COVID-19.

At 31 July 2020, the Statement of Financial Position showed total assets of £21.1m, up from £20.9m as at 31 January 2020, primarily due to an increase in the cash balance. Total equity was £14.2m at 31 July 2020, up from £13.0m as at 31 January 2020, which reflects the profit incurred and the issue of shares. 

Condensed Consolidated Income Statement

For the period ended 31 July 2020

The operating profit/(loss) arises from the Group's continuing operations.

There is no recognised income or expense for the period other than the loss shown above and therefore no separate statement of other comprehensive income has been presented.

Condensed Consolidated Statement of Financial Position

At 31 July 2020

Condensed Consolidated Statement of Changes in Equity

For the period ended 31 July 2020

The Condensed Consolidated Statement of Changes in Equity for the comparative period to 31 July 2020 has been amended to align to the Group's year end 31 January 2020 accounting policies.

Condensed Consolidated Statement of Cash Flows

Cash and cash equivalents

For the purposes of the statement of cash flows, cash and cash equivalents comprise cash at bank and in hand. This is consistent with the presentation in the Statement of Financial Position.

Notes to the Condensed Consolidated Financial Statements

1. General information

The principal activity of the Company is that of a holding company. The principal activity for the Group continued to be that of providing online property portal services to businesses in the estate and lettings agency industry under the trading name of OnTheMarket.com.

The Company is a public company limited by shares and it is incorporated and domiciled in the UK. The address of its registered office is PO Box 450, 155-157 High Street, Aldershot, GU11 9FZ. Its shares are listed on AIM.

2. Significant changes in the current reporting period

As part of its mitigating actions in response to the COVID-19 pandemic, the Group significantly reduced marketing expenditure, which was down 67% to £2.2m (H1 19/20: £6.6m).

The Company issued 174,879 ordinary shares on 30 April 2020 and 105,149 ordinary shares on 31 July 2020 to specific agents who had entered long-term contracts to advertise all of their UK residential sales and letting properties on OnTheMarket.com. The shares are accounted for at fair value, being the value of the shares at the contract commencement, as a prepayment and released over the life of the contract.

Agent share prepayments of £3.5m are reflected in trade and other receivables for the period to 31 July 2020 (31 January 2020: £3.9m). The fall reflects the release of the prepayments over the life of the listing contracts the shareholder agents have entered into.

The company issued 173,317 ordinary shares on 11 February 2020, 200,000 ordinary shares on 30 April 2020, 549,754 ordinary shares on 8 June 2020, 200,000 ordinary shares on 26 June 2020 and 300,000 ordinary shares on 31 July 2020, in each case following the exercise of employee options.

3. Basis of preparation of half-year report

The interim results for the six months ended 31 July 2020 have been prepared on the basis of the accounting policies expected to be used in the year ended 31 January 2021 OnTheMarket plc Annual Report and Consolidated Financial Statements and in accordance with the recognition and measurement principles of International Financial Reporting Standards as adopted by the European Union ("EU") ("IFRS"). The interim results do not include all the information and disclosures required in financial statements prepared in accordance with IFRS and should be read in conjunction with the accounts for the year ended 31 January 2020.

The same accounting policies, presentation and methods of computation are followed in these interim condensed set of financial statements as have been applied in the Group's latest annual audited financial statements, with the exception of segmental reporting of revenues, further information on which is set out in note 5 below.

The interim results, which were approved by the Directors on 12 October 2020, are unaudited. The interim results do not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006.

Comparative figures for the year ended 31 January 2020 have been extracted from the statutory accounts for the Group for that period, which included an emphasis of matter paragraph drawing attention to the impact of COVID-19 on the wider economy, the Group's agents and its general business activities. In this emphasis of matter paragraph, the auditor stated that whilst the ultimate outcome of the matter cannot be determined, the financial statements at 31 January 2020 did not require adjustment for the post year-end effects of COVID-19 and that the audit opinion was not modified in respect of this matter.

The interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report should be read in conjunction with the annual report and consolidated financial statements for the period ended 31 January 2020 and any public announcements made by OnTheMarket plc during the interim reporting period.

4. Accounting policies

Going concern

The Group made a profit after tax for the period ended 31 July 2020 of £0.7m (6 months to 31 July 2019: loss of £7.0m). The Group had a period end net cash balance of £9.8m (31 January 2020: £8.7m) and, excluding deferred creditors of £2.3m, no borrowings. At 30 September 2020 the Group had a net cash balance of £10.3m and, excluding deferred creditors of £2.0m, no borrowings.

The Directors have prepared and reviewed cash forecasts and projections for the Group for the next 12 months in light of the potential ramifications for Group revenues due to the COVID-19 crisis, among other factors. They have also conducted sensitivity analyses and considered scenarios where the impact on future revenues is more significant and more sustained than currently experienced or anticipated, together with the mitigating actions they may take in such circumstances, such as a reduction in budgeted discretionary expenditure, a significant proportion of which relates to advertising and marketing cost that can be reduced materially at short notice. The ability of management to take such measures on short notice was illustrated by the £4.4m reduction in marketing expenditure in the current period compared with the previous half-year, actions that were taken following the unforeseen impact of COVID-19 on the UK housing market.

Based upon these projections and analyses the Directors have a reasonable expectation that the Group has adequate financial resources to continue its operations for the foreseeable future and to be able to meet its debts as and when they fall due.

In light of this, the Directors consider the going concern basis to be appropriate to the preparation of these interim financial statements.

5. Revenue by operating segment

The Group has determined that the Chief Executive Officer, or Acting Chief Executive Officer, ("CEO") is the chief operating decision maker. Monthly management numbers are reported and issued to the CEO, which are used to assess the performance of the business.

Following the launch of the Group's new homes segment, the Group has determined it now has three reportable segments, namely products and services, including where relevant the provision of access to its online portal OnTheMarket.com (listing fees), offered to:

· the agency segment, comprising estate and letting agents;

· the new homes segment, comprising new home developers; and

· the other income segment, comprising non-property advertising income.

Costs are not analysed by segment.

Within each reporting segment, there is only one major service provision line. All revenue relates to services transferred over the term of the listing agreements.

Sales are billed monthly in advance and payments are recognised as deferred income. The Group has no contract assets but has contract liabilities as follows in respect of deferred income:

The fall in deferred income reflects the COVID-19 related discount offered to full-tariff agent customers, which lowered deferred income at the period end. Contract liabilities of £1,585k at 31 January 2020 were recognised as revenue in the period ended 31 July 2020.

All revenue is generated in the UK for this service.

6. Profit and loss information

Profit for the half-year includes the following costs in relation to specific professional fees, share-based payments and one off events that are not expected to be recurring:

Share-based employee incentive charges include the movement in the expected future employer's national insurance charge based on the period-end share price. See note 10 for further details.

Compensation net of professional fees incurred during the current period were in relation to litigation which was settled in the period. Compensation relates to the recovery of litigation costs.

Agent recruitment charges relate to share-based charges arising on the issue of shares to agents committing to long-term service agreements, in line with the Group's strategy to grow the agent shareholder base.

Government grant income relates to receipts under the Coronavirus Job Retention Scheme.

Payments in relation to loss of office reflect contractual compensation to Ian Springett for loss of office and associated legal costs.

Non-recurring staff related costs relate predominantly to professional fees paid in relation to the search for a permanent Chief Executive Officer following Ian Springett's departure from the Group.

7. Earnings per share

In periods where the Group made a loss there is no dilutive effect. Instruments that would dilute earnings per share have not been included as these are anti-dilutive.

8. Intangible assets

 Amortisation is included within administrative expenses in the income statement.

The development costs relate to those costs incurred in relation to the development of the Group's online property portal, OnTheMarket.com. The development costs capitalised above are amortised over a period of 4 years which represents the period over which the Directors expect the Group to consume the asset's future economic benefits. The development costs are amortised from the point at which the asset is ready for use within the business.

9. Investments in associates

The Group and Company have the following investments in associated undertakings:

1The Group and Company also hold an option to acquire the remaining 80%.

Glanty Limited is incorporated in the United Kingdom and its registered address is 4 Prince Albert Road, London, NW1 7SN.

No share of profit or loss from associates has been recognised on the basis that the Group's share of the after-tax result to 31 July 2020 is not material to the Group financial statements.

Total consideration amounted to £797k, of which £230k formed the initial consideration and had been paid to 31 January 2020. A further £358k was paid in the period to 31 July 2020.

Under the terms of the investment, the consideration was to be reduced by up to £40k should Glanty Limited receive a tax credit for qualifying research and development expenditure. Following the receipt of a payment in May 2020, the investment was reduced by the full £40k.

At 31 July 2020 £169k relates to deferred consideration and has been recognised in other payables. The total amount capitalised of £945k includes directly attributable legal costs of £188k.

As part of the agreement, OnTheMarket was granted a call option, under which it has the right, but not the obligation, to enter into a share purchase agreement to acquire the remaining shares in Glanty for an initial consideration of approximately £1,500k (payable in cash or shares at OnTheMarket's option), plus a revenue and EBITDA based earnout arrangement, alongside the repayment of approximately £1,400k of loans. 

The call option is exercisable for a period of 15 months from 23 December 2019, ending on 23 March 2021. Should the call option lapse, OnTheMarket has a put option to sell its shares to an existing shareholder of Glanty for £757k. The same Glanty shareholder also has a call option to acquire OnTheMarket's shares for £757k in the event that the Company's call option lapses.

The Directors have not recognised the fair value of the call and put option in the balance sheet at 31 July 2020 on the basis the value ascribed to these is immaterial.

The associate's principal activity is that of property services, and its initial product "teclet" is designed to automate the lettings process and bring efficiency gains to agents, landlords and tenants. The acquisition is considered to be strategic to the Group's activities, because the associate's principal activities are the provision of value-added services to customers of the Group.

10. Share-based payments

Agent Recruitment Shares

The Group issued 280,028 agent recruitment shares during the period. Fair value was determined in accordance with the accounting policy set out in note 2.18 in the Annual Report and Consolidated Financial Statements for the year ended 31 January 2020. The weighted fair value of shares granted was £0.689.

Share-based Employee Incentives

The Company has granted no new share options under its Management Incentive Plan, its employee share scheme or its Company Share Option Plan in the period.

The unexercised options under these plans are stated below:

The value of employee services provided under all the employee incentive plans of £416k (6 months to 31 July 2019: £268k) has been charged to the income statement.

Management Incentive Plan

Further details of the management incentive share option plan are as follows:

These share options expire 10 years after the date of grant. Share options granted under this scheme have a nil exercise price. 1,386,550 options are exercisable from 9 February 2023. The remaining 4,506,389 options are exercisable immediately, however 4,159,645 shares arising from exercise are subject to a restriction on sale until 9 February 2023. The fair value of all these options was charged to the profit and loss account in full in the year to 31 January 2018.

Employee share scheme

Further details of the employee share option plan are as follows:

These share options expire 10 years after the date of grant. Share options granted under this scheme have a nil exercise price and vest 3 years after the date of grant. The fair value of these share options is charged to the profit and loss account over the vesting period. The share options are forfeited should the employee leave.

Company Share Option Plan

Further details of the company share option plan are as follows:

These share options expire 10 years after the date of grant. Share options granted under this scheme have an exercise price of £1.65 and vest 3 years after the date of grant. The fair value of these share options is charged to the profit and loss account over the vesting period. The share options are forfeit should the employee leave.

National Insurance Contributions

National insurance contributions are payable by the Group in respect of all share-based payment schemes except the Company Share Option Plan. A provision has been recognised at 13.8% for a total expense of £167k (6 months to 31 July 2019: £23k).

The following have been expensed to the consolidated income statement:

11. Related party relationships and transactions

In the ordinary course of business, the Group has entered into transactions with Whiteleys Chartered Certified Accountants, a company controlled by a close family member of Helen Whiteley, an Executive Director of the Group. Whiteleys Chartered Certified Accountants provides an outsourced finance function to the Group. During the period, the Group purchased services amounting to £382k (6 months to 31 July 2019: £354k) and at the period end the Group owed £82k (31 July 2019: £64k).

12. Post balance sheet events

On 1 September 2020 the Group announced the appointment of Jason Tebb as Chief Executive Officer, with a date of 14 December 2020 to commence employment.

There were no other significant post balance sheet events.