PURP.L Regulatory News (PURP)

13 December 2018

Purplebricks Group plc

("Purplebricks", the "Company" or the "Group")

Interim Results for the six months ended 31 October 2018

Step-up in UK profitability, building a global business

Purplebricks Group plc (AIM: PURP), the world's leading hybrid real estate agency, announces its Interim Results for the six months ended 31 October 2018 ("H1 2019" or the "First Half").

Financial highlights (IFRS 15 basis [3])

· Group revenue up by 75% to £70.1 million (H1 2018: £40.1 million)

· UK revenue up by 39% to £48.3 million, UK ancillary revenue up 25%

· International now represents 31% of Group revenue

· Group gross margin up by 260bps to 59.9%, UK like for like [4] gross margin up by 180bps

· UK Adjusted EBITDA £8.4 million, up 265% (H1 2018: £2.3 million)

Operational highlights

· Completed on £5.4 billion of UK property (H1 2018: £4.6 billion), saving customers £96 million in commission

· UK hybrid market share of 74%

· UK average revenue per instruction up 6%

· Australian model evolved to work better for customers, LPEs and Purplebricks

· Confidence to expand US business to Arizona, Nevada and Florida - now operating in seven states, representing more than 20% of US-wide instructions

· DuProprio/ComFree our Canadian business acquired in July 2018 continues to meet management's high expectations

· Agreed minority JV investment in Homeday.de, the leading German hybrid real estate agent

· Appointed Vic Darvey (former Managing Director of MoneySupermarket) as our first Group Chief Operating Officer, starting January 2019

Michael Bruce, Group CEO, commented:"Our UK business continues to make good progress, with strong sales growth, market share gains and a step-up in both profitability and positive cashflow. It is this strength that will see Purplebricks emerge stronger from the ongoing industry shakeout, which is expected to continue to expose undercapitalised traditional and online competitors. 

"Following Axel Springer's investment in March, we are already seeing how shared knowledge and best practice across the business can benefit the entire Group.

"Purplebricks has led industry change and through our strategy of relentless innovation will continue to do so. We are always looking to improve the customer experience and with over £100 million of net cash, we are uniquely placed to do so, investing in technology and first class people. We remain confident that our UK success will be replicated internationally and that we will deliver substantial value for our shareholders."

Outlook

Our UK business continues to outperform the industry, demonstrating an ability to grow strongly and win share in challenging market conditions. Whilst we expect no short-term improvement to this market dynamic, we are confident that we will continue to outperform and take further UK market share from competitors throughout the second half of our financial year.

Having now launched in phase one target states in the US, early indications show brand recognition and consideration are growing strongly. We are confident, with new marketing creative launching in the new year, that we will see a step up in instructions from our most recently added DMAs, which are yet to generate a meaningful contribution. Our near term strategy remains focused on maximising operational delivery, which will drive further revenue over time.

With six months of the year behind us and in light of the above, the Board narrows the range of our previously disclosed 2019 guidance, under IAS 18, from £165-185 million to between £165-175 million, in line with current market consensus.The adoption of IFRS 15 will result in an approximate 2% downward adjustment to our guidance, with a minimal impact on profit and no impact to cash.

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Presentation

A presentation will be held for analysts and professional investors at 09.00am (UK time) at Instinctif Partners, 65 Gresham Street, London EC2V 7NQ. Please RSVP to Catherine Walton (+44 020 7457 2020 - catherine.walton@instinctif.com) if you would like to attend.

The presentation will be webcast live and will be accessible via the Purplebricks website [5] at www.purplebricksplc.com/investors/latest_results. An on-demand replay will also be available on the Purplebricks website following the presentation.

Enquiries

Forward-looking statements

This announcement includes statements that are, or may be considered to be, "forward-looking statements". By their nature, such statements involve risk and uncertainty since they relate to future events and circumstances. Results may, and often do, differ materially from forward-looking statements previously made. Any forward-looking statements in this announcement reflect management's view with respect to future events as at the date of this announcement. Except as required by law or by the AIM Rules of the London Stock Exchange, the Company undertakes no obligation to publicly revise any forward-looking statements in this announcement following any change in its expectations to reflect subsequent events or circumstances.

About Purplebricks

Purplebricks is the world's leading next generation real estate agency. Based in the UK, it also operates in Australia, the US and Canada. Purplebricks combines highly experienced and professional Local Property Experts (US: Local Real Estate Experts) and innovative technology to help make the process of selling, buying or letting more convenient, transparent and cost effective. Purplebricks shares are traded on the London Stock Exchange AIM market.

First Half 2019 Review

Purplebricks has delivered a strong trading performance as well as achieving substantial strategic progress in the six months to 31 October 2018.

Group revenue under the new accounting standard IFRS 15 "Revenue from Contracts with Customers" rose 75% to £70.1 million (H1 2018: £40.1 million). This performance was driven by 39% sales growth in the UK, 28% in Australia, 5,900% in the US and a contribution of £9.2 million from our newly acquired Canadian business, which is included for the first time. While reporting strong growth in Australia, the underlying performance was held back by market conditions and some operational issues, which we have taken steps to correct with changes to the team, customer proposition and business model.

The Group gross margin was 60%, up from 57% in the comparable period last year, with the UK margin rising to 65% (up 180bps on a like-for-like basis), reflecting the increasing contribution from higher margin ancillary sales, which recent investment in the Home Purchase team has enabled.

Notwithstanding the challenging macro economic backdrop and market disruption caused by Brexit uncertainty, Purplebricks has continued to outperform its UK peers, winning market share from traditional operators and maintaining its substantial lead over online/hybrid competitors. We completed on £5.4 billion of UK property (H1 2018: £4.6 billion), saving customers £96 million in commission during the First Half [6].

While the UK market has seen unprecedented investment by competitors in marketing and unsustainable reductions in fees charged, it has not materially impacted Purplebricks. As we have previously noted, this dynamic appears to have started to take its toll on the industry with mounting evidence of a shakeout in both traditional and online business models. Management believes that our growth, scale, flexibility and financial strength, with no debt and net cash as at 31 October 2018 of £103.1 million, places us in a strong position to continue to grow market share at the expense of under-capitalised competitors.

We have made substantial progress in the development of our US business over the first six months of the year - rolling out into the states of Arizona, Nevada and Florida, expanding the teams in both the East and West Coast offices, which now total 91 people, and further growing the base of Local Real Estate Experts ("LREEs"), which at 31 October numbered 140. Brand awareness continues to grow and in the Los Angeles DMA, where the business is most established, having soft launched in September 2017, prompted brand awareness as at October 2018 has grown to 44%, ahead of the UK at the same time of its development.

Management is confident that with Purplebricks now operating in seven states across the US in just over one year, we have built up a profile and a substantial amount of market intelligence to enable us to make more informed strategic decisions and prudent capital deployment. This is expected to drive further growth and achieve a meaningful share of the US market, where selling fees typically average between 5% to 6%, including the opportunity to earn buy side commission. Early key performance indicators, compared with other geographic markets at the same time in their development are encouraging, with the business achieving a higher conversion from listing appointment to listing, the highest conversion from listing to sale and a larger proportion of higher margin ancillary revenue.

The acquisition of the Duproprio and ComFree businesses in Canada in July 2018 and the agreed minority investment in Homeday.de in Germany as part of a strategic investment alongside Axel Springer, announced in October 2018 and expected to complete later in December, mark new milestones for the Group. Both deals back existing management teams, with local knowledge and proven track records. The strength and depth of the teams are such that Purplebricks' senior management is able to focus most of their time and attention on delivering in existing markets. Management believes that there are substantial growth opportunities in these new territories where there are materially higher estate agents fees and moving costs compared to the UK. In less than five years since launch, Purplebricks now operates in four countries with an addressable market of four million [7] property transactions a year.

Purplebricks remains focused on growing the business and winning further share in all its markets, and will continue to invest across the business in first class people, marketing, technology and infrastructure. This investment combined with the early stage rollout in the US, has resulted in Adjusted EBITDA losses widening to £21.0 million (H1 2018: loss of £9.9 million). The Group remains confident that this level of investment is necessary to extend its lead in a competitive marketplace and will, in time, generate an attractive return for shareholders.

Delivering an ever better service to customers remains critical to our success, evidenced by customer feedback from both Trustpilot (with an 89% 5* Excellent rating from over 61,100 reviews across the UK, US and Australia) and Feefo, where our rating is 4.7 out of 5.0 in the UK.

Business review by geography

UK

Financial summary

A unique model of scale and agility

The core Purplebricks business model is built around a flexible cost base without the fixed salaried costs of real estate agents, substantial infrastructure costs and the cost of operating entirely on a flexible contingency fee basis. The strengths of the Purplebricks business model are evident and the risks of operating a traditional agency model or a no sale no fee online offer are increasingly clear.

Purplebricks has the added advantage of scale, achieving 38,600 new instructions in the six month period, a year-on-year increase of 20%. This scale is evident in the profitability of the UK business, with Adjusted EBITDA, the best proxy for cash profit, up 265% to £8.4 million (H1 2018: £2.3 million). Operating profit in the period was £5.7 million (H1 2018: £0.8 million). We continue to invest in technology and people in order to continue to lead change in the industry and to advance the target of reaching at least 10% market share in the medium term. In the First Half, UK adjusted administrative expenses were £9.3 million (H1 2018: £7.8 million), improving as a percentage of UK revenue to 19% (H1 2018: 22%).

Investing to drive customer experience and long-term market leadership

Building on our market leading technology

Purplebricks was built on the vision of combining first class Local Property Experts ("LPEs") with industry-leading technology, with our platform remaining a key differentiator from peers. Technology is also at the heart of our strategy to create longer lifetime relationships with customers, keeping them engaged with the business through a broader offering of products and services and with simple yet innovative ways of making their lives easier, more convenient and better informed.

The Group continues to invest in technology, with the ongoing focus on improvements to the customer experience as well as making the journey easier and simpler by reducing friction points across the platform. These improvements, which can be marginal in nature, through increased conversion, can drive a material improvement in profitability. We have invested in technology to create efficiencies, increase productivity and improve the customer experience.

The in-house technology team, along with external expertise, continues to work on Purplebricks Plus, the aim of which is to provide timely access to other value-based home-related services including broadband, TV, energy and insurance simply through the Purplebricks app. This will represent a major step forward in terms of customer experience and a further meaningful differentiator to the competition. Work remains on-going, with a number of partnership deals already signed, including Comparison Technologies. Purplebricks Plus is expected to launch before the end of our current financial year.

Outbound team strengthened

There has been a notable increase in the effectiveness of this central team whose role is to proactively convert leads from various sources. The team has been strengthened and is now led by an experienced Regional Director promoted into this role. Instructions per team member have risen by approximately 50% year-on-year, with an equivalent increase in valuations. We are making continuous productivity gains and will build on them with upgraded telephone systems, auto-dialers, enhanced reporting and smart distribution of calls, leads and opportunities.

Concierge team now covers the whole country

Purplebricks is fundamentally about selling houses while giving a much better experience and saving our customers money. As part of our strategy to deliver exceptional outcomes we have a Concierge team that focuses on those properties that need more input to increase exposure, create more activity and secure a sale. They supplement the contracted work of the LPE to identify ways of improving the prospects of sale by reviewing marketing exposure and sale price with customers. While this additional service comes at no added charge to the customer, the team has a very high success rate in helping to secure sales and typically attracts very positive feedback from customers.

Home Purchase team driving ancillary sales

During the First Half, we created a Home Purchase team, replacing and enlarging the existing Conveyancing Sales team, with an enhanced customer proposition, utilising sophisticated data resources to engage with buyers, sellers and viewers. This team is focused on driving ancillary sales predominantly to buyers. As can be seen from our First Half results, the investment is showing a good early payback, with UK ancillary revenues in the period increasing by 25% year-on-year. This growth has been primarily driven by early success in selling conveyancing services to the buyer. Some progress has been made with mortgage referrals, though this opportunity remains in its infancy. There still remains a significant opportunity with conveyancing and mortgages to further drive revenue and margin.

Post-sales Support team driving successful customer outcomes

As a full service real estate agency we have grown the team of people who support our customers through the journey from sale agreed to completion. This team supplements the work performed by LPEs rather than replacing it, with their specialist skills deployed when specific issues arise which potentially put a sale at risk. This team is extremely experienced and there has been a strong focus on productivity and efficiency as we further drive the operational leverage within our central functions. The number of sales being completed, influenced by this team, coupled with the number of customer reviews demonstrate that they play a significant part in the customer journey and indeed their satisfaction.

Improving LPE productivity

We had built up a national network of 851 LPEs, sales assistants and academy members as at 31 October 2018, and our focus is on improving productivity by on-going improvements to recruitment, training, technology and the sharing of best practise. During the First Half, we recruited an experienced People Director and are currently recruiting for a senior Training Director to jointly oversee the future growth and development of our LPEs and our people. We believe they will have a big impact on the quality of people and service, operational excellence, productivity and increased revenue growth through better conversion of opportunities.

As we expand internationally and learn more about ways to engage the customer, we are able to share best practice across the Group. This has led to the improvements in the productivity of LPEs.

There is an internal grading system for LPEs, which highlights differences in productivity and ultimately profitability between the highest and the lowest performers. It is very encouraging that an increasing number of LPEs are obtaining the highest gradings and work will continue to improve this further.

In addition to the productivity improvements, Purplebricks is in the process of recruiting further new LPEs as we approach the spring market. It is encouraging that the quality of the candidates remains at the highest level and that we are attracting more branch manager standard experts than a year ago. We also have 72 people currently in our academy training programme.

Creating engaging marketing and advertising

Effective marketing has always been one of the key drivers of our growth. Operating under a single national brand, the industry-leading strategy of running a high impact, near continuous presence on TV and radio has resulted in Purplebricks being the best-known estate agency brand in the UK in less than five years.

The marketing success in the First Half is set against increased investment in marketing by online competitors and a challenging housing market. The latest available data from The Nursery, a leading independent research and planning agency, shows that as at September 2018, Purplebricks has industry-leading unprompted brand awareness, which has grown to 48%, an increase of eight percentage points since May, from people looking to sell their property. Within its competitive set, including property portals and traditional leading high street agents, Purplebricks has the industry's highest prompted brand awareness at 97%.

Having established leading brand awareness, the marketing focus continues to be on consideration (whether customers would consider appointing us next time they sell a property), which had increased to 43% as at 30 September 2018, up from 40% at May 2018. Top box consideration, defined as a consumer stating that they would definitely use Purplebricks next time they sell a property has, over the same time period, increased by 500bps.

We continue to diversify our media mix with Outdoor included for the first time alongside category-leading investment in television, radio and PPC. We will continue to flex our approach to media channel in order to drive greater consideration through educating more and more people on the nature and extent of the service we offer. We recently undertook pitch sponsorship for each of the Scotland home rugby games televised on the BBC. This gave us access to new audiences with a broadcaster that does not permit traditional advertising.

Lettings

Lettings represented 8% of UK revenue in the First Half (H1 2017: 8%) and we continue to develop our capabilities with 5,800 units under management at 31 October 2018, up 32% year-on-year (31 October 2017: 4,400). We have recently strengthened our management of this team to examine ways to further scale the business and our national network of Local Lettings Experts. Our intention is to provide an opportunity for Landlords similar to what we offer Sales Vendors with service excellence and delivery.

The legislative risk to tenant fees is not expected to have a material impact on the business.

Australia

Financial summary

Evolving the offer to better work for customers, LPEs and Purplebricks

The operating loss of A$10.2 million in the First Half includes one-off costs in connection with the recent restructuring and re-positioning of the business. Some further one-off restructuring costs are also expected in the second half of the year. These changes have been implemented by the new management team, led by Neil Tavender, CEO of Australia. Neil has had a career in senior sales, management and leadership roles in digital and property businesses, including with Rightmove, where he was Sales Director.

The underlying results testify to the challenges in the first few months of the period but are too early to show the benefits of the recent changes in the customer offering and reward for LPEs. After undertaking consumer research and testing we launched a new customer proposition from 1 October 2018 as follows:

· An all-inclusive fee of A$8,800

· Only half of the fee is now paid upfront, which can be deferred for six months or until completion

· The other half of the fee is payable upon completion of a successful sale

· The service includes for the first time a premium marketing package, a premiere listing on realestate.com.au and professional photography

Lessons have been learned in Australia and we continue to believe that with the depth of knowledge and experience of the new management team, the business can grow to become the leading real estate agent in Australia. While it is too early to be definitive, early indications are encouraging.

In addition to the customer proposition the business model has also been revisited, including a review of all costs. This has resulted in a lower fixed cost base, and greater flexibility in cost structures. One such change has been the removal of the salaried position of Local Sales Assistants. Combined with other changes the number of monthly instructions required to reach breakeven has been substantially reduced. As a result, it is now expected that second half losses will be below those reported in the First Half.

US

We are very excited about the opportunity and progress we are making in the US, the largest residential market in the world. Since we successfully launched our real estate brokerage business in September 2017 in the Los Angeles designated market area ("DMA"), we now have established operations across seven states and ten separate DMAs. This established footprint represents more than 20% of the total US addressable residential existing resale market.

During the First Half, we accelerated expansion into DMAs across Arizona, Nevada and Florida, providing broader access to a strong consumer base. We continue to grow across all our markets and take share despite the California market as a whole softening in terms of year-on-year sales levels.

The US team also successfully launched its portfolio of ancillary services within the first year of operations, which now include escrow closing services and a national title business, positioning us favourably to continue strong revenue growth. We are already seeing over a 70% attachment rate on our escrow closing services. In calendar 2019, we will roll out our mortgage business and insurance services. We expect the US market to be our second largest market by revenue by the end of this financial year.

In 2019, we will continue to invest in marketing, building brand awareness across all our DMAs as we continue to refine our offering, driving market penetration with our established team, infrastructure and leadership. To date we have achieved notable success - with a net promoter score of more than 90 and some 1,000 five-star Trustpilot reviews, a testament to the outstanding customer service provided by our highly trained Local Real Estate Experts. 

Canada

In July 2018 the Canadian business trading under the brands DuProprio and ComFree was acquired for a net cash consideration of £27.3 million. The business has a leading position in the province of Quebec, with a market share of 20% and has recently expanded its operations into the territories of Ontario and Western Canada, which combined accounted for 78% of total Canadian instructions in 2017. Under the ownership of Purplebricks, but led by the local management team, headed by CEO Marco Dodier, the strategy is to deepen the rollout across the country and develop the buy side opportunity. Currently, the vast majority of the income is generated from the sellside.

The performance since acquisition has been strong, with KPIs in line or ahead of pre-acquisition expectations.

The business has a well-invested and highly scalable technology platform. Marketing however has historically been limited, despite the fact that the cost of media in the country is relatively low. A new and more ambitious marketing strategy has now been finalised for the new calendar year and will run in tandem with the rebranding of the ComFree business to Purplebricks. We will retain the DuProprio brand as it is well-established and respected in Quebec.

The Company will be investing over the medium term to capture the market share opportunity across the country, using the retained profits generated by Quebec and supplemented by cash from Purplebricks. It is anticipated that the new marketing campaign will have a significant impact on brand awareness and drive a substantial uplift in topline growth. With the inherent operational gearing in the model, market share gains outside of Quebec are expected to drive a move into profitability in the medium term.

People

We are delighted to confirm that Vic Darvey has agreed to join us as Group Chief Operating Officer with effect from January 2019.

Vic 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. He has held leadership roles across a number of highly competitive and disruptive businesses, including LastMinute.com. Vic brings a proven record of technology delivery and leadership of cutting edge data-led, customer-focused, commercial innovation.

Financial review

Adjusted EBITDA

Adjusted EBITDA, which is not defined in IFRS, is a measure which is used by the board and management for planning and reporting.

Definition

Profit or loss from operating activities, adding back depreciation, amortisation and share based payment charges and non-recurring acquisition costs. The Group believes that this measure, which is not considered to be a substitute for or superior to IFRS measures, provides stakeholders with helpful additional information on the underlying performance of the Group.

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.

Share based payment 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.

Non-recurring acquisition costs: a one-off item which exists only in an accounting period when an acquisition occurs. We believe adjusting for these non-recurring items improves comparability period on period.

Adjusted operating costs

Adjusted operating costs are administrative expenses, adjusted by adding back depreciation, amortisation and share based payment charges and non-recurring acquisition costs.

Condensed consolidated statement of changes in equityfor the six months ended 31 October 2018

Condensed consolidated statement of changes in equityRestated for the six months ended 31 October 2017

Condensed consolidated statement of changes in equityRestated for the year ended 30 April 2018

Notes to the condensed set of financial statements

Six months ended 31 October 2018

1. General information

Purplebricks Group plc is a public limited company limited by shares registered in England and Wales. The address of the Company's registered office is Purplebricks Group plc, Suite 7, First Floor, Cranmore Place, Cranmore Drive, Shirley, Solihull, West Midlands, B90 4RZ. The Company is primarily involved in the estate agency business.

The financial information set out in this announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.

The Consolidated Statement of Financial position at 30 April 2018, the Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows and associated notes for the year then ended have been extracted and subsequently restated for IFRS 15 adjustments from the Group's 2018 financial statements upon which the auditor's opinion is unqualified and does not include any statement under Section 498(2) or (3) of the Companies Act 2006.

2. Summary of significant accounting policies

These interim unaudited financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, and do not contain all of the disclosures required by IAS 1 Presentation of Financial Statements or other standards. The accounting policies adopted are consistent with those of the previous financial period (see pages 41 to 45 of the 2018 Annual Report) except as described below at Note 2.2 and 2.3. 

2.1 Basis of preparation

The Company's financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The consolidated financial statements have been prepared under the historical cost convention subject to recognising certain financial instruments at fair value.

2.2 Tax

Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual earnings.

2.3 New accounting standards adopted in the period

Revenue recognition

Implementation of IFRS 15 Revenue from Contracts with Customers

The Group has initially adopted IFRS 15 Revenue from Contracts with Customers in these interim financial statements.

An explanation of how the Group has applied IFRS 15, including the judgements taken in the application of the standard, is set out below.

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It has replaced IAS 18 Revenue. As the overall value of the adjustments on adoption of IFRS 15 to the Group's previously reported results is significant, in order to ensure comparability of current period reported results against the restated results of comparative periods, the Group has adopted the standard using the fully retrospective method, with the effect of initially applying the standard recognised at the beginning of the comparative period, ie 1 May 2017. Accordingly, the information presented for the 6 months to 31 October 2017 and the year to 30 April 2018 has also been restated.

The effect of initially applying this standard mainly arises from:

· Later recognition of instruction fee revenue, and associated cost of sales, and

· Earlier recognition of revenue from Conveyancing referrals and Brokerage activities, and associated cost of sales.

Please see the tables set out at the end of this document.

Table 1 summarises the impact of transition to IFRS 15 on retained earnings at 1 May 2017.

Tables 2 - 6 summarise the impacts of adopting IFRS 15 on the Group's previously reported:

· interim statement of profit or loss and other comprehensive income for the six months ended 31 October 2017

· statement of profit or loss and other comprehensive income for the year ended 30 April 2018

· interim statement of financial position as at 31 October 2017

· statement of financial position as at 30 April 2018.

· earnings per share for the 6 months ended 31 October 2017 and for the year ended 30 April 2018

The condensed consolidated statement of cash flow for both comparative periods have been restated to reflect the adjustments detailed in Tables 1 - 6.

The details of the new significant accounting policies and the nature of the changes to previous accounting policies in relation to the Group's various services are set out below. Under IFRS 15, revenue is recognised when control of the services passes to the customer. The Group has been 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.

Contracts with customers

The Group has identified the following significant categories of contracts with customers:

· Instructions ("a")

· Conveyancing ("b")

· Brokerage ("c")

· Lettings - landlord setup services ("d")

· Lettings - monthly management services ("e")

The adjustments arsing on the adoption of IFRS 15 in respect of categories "a" and "b" are set out in the tables at the end of this note. As the adjustments arising on categories "c", "d" and "e" are not material, they have been presented together in an "Other" category in these tables.

Instructions ("a")

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, straight line, as the estate agency services are performed. 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 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.

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 this period, which covers both a marketing period and a post sales support period. If the length of the average service period increased by 5%, then there would be a corresponding decrease in revenue of £0.6m for the 6 months to 31 October 2018.

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 over the average service period. These costs are reported within prepayments.

New Australian model

The Group's Australian business has recently introduced a revised business model under which the instruction fee is split into two elements. These elements are (i) an upfront fee, which is non refundable and which is treated in line with the description above, and (ii) a success fee, which is due only on settlement of a successful sale of the property. Each fee is in respect of the performance obligation to provide estate agency services. The success fee is accrued over time as the Group fulfils its performance obligation, over the expected service period, at the fair value of expected consideration receivable. The expected fair value of consideration received is estimated based on historical experience. The Group monitors the rate of sales of properties marketed 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.

Previous accounting policy and impact of adoption of IFRS 15

Under the Group's previous accounting policy, instruction fees were recognised as the Group's obligations were completed. Instruction fee revenue was allocated to obligations occurring before listing and obligations after listing. A significant proportion of the obligations, based on an assessment using an input method occurred prior to listing, and therefore a significant portion of the total transaction price was recognised at or before listing.

Therefore, on adoption of IFRS 15, the amount of reported deferred income in respect of instruction fees has increased, and the amount of reported revenue has decreased. The amount of prepaid cost of sales recognised as an asset in the statement of financial position has increased, and the amount of reported costs of sales has decreased. The impact of the relevant adjustments is shown within the tables below. The impact on reported revenue for the 6 months to 31 October 2017 and for the year ended 30 April 2018 is show in the table below.

Conveyancing ("b")

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.

As part of the Group's work on the adoption of IFRS 15, the Group's relationship with its customers in respect of Conveyancing revenue has been re-assessed with a view to confirming whether the Group is principal or agent in the underlying transactions. The Group's view remains that, as previously, 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.

Previous accounting policy and impact of adoption of IFRS 15

Under the Group's previous accounting policy, conveyancing referral fees were recognised at the completion of the property sales that would give rise to them, ie when the receipt of each individual fee due became certain.

Therefore, on adoption of IFRS 15, the amount of reported accrued income has increased, and the amount of reported revenue has also increased. The amount of accrued cost of sales, which will become payable on completion of the transaction and which are reported within accruals, has increased. The impact of the relevant adjustments is shown within the tables below.

The impact on reported revenue for the 6 months to 31 October 2017 and for the year ended 30 April 2018 is show in the table below.

Brokerage (c)

The Group also provides, in the US, Buyside brokerage and Escrow services. These services are provided to customers who are both sellers and buyers of residential properties, with the performance obligation in each case being to assist the customer in bringing the transition to a successful conclusion. Revenue, in the form of commission, becomes due in respect of these transactions on successful completion of a property sale.

Customers receive benefit from the Group's services as they are performed over time between an instruction to act on the customer's behalf and completion of the property transaction. Therefore revenue in respect of these services is recognised under IFRS 15 over time on a straight line basis as the Group fulfils its performance obligation. Revenue is recognised at the fair value of the expected consideration which will be receivable, taking into account historical transaction completion rates. The fair value of consideration is a key estimate and therefore the Group monitors the rate of sales of properties marketed 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.

Previous accounting policy and impact of adoption of IFRS 15

Under the Group's previous accounting policy, brokerage and escrow fees were recognised at completion of the underlying property sales.

Therefore, on adoption of IFRS 15, the amount of reported accrued income has increased, and the amount of reported revenue has also increased. The amount of accrued cost of sales, which will become payable on completion of the transaction and which are reported within accruals, has increased. The impact of the relevant adjustments is shown within the tables below .

The impact on reported revenue for the 6 months to 31 October 2017 and for the year ended 30 April 2018 is show within "other" revenue in table 7 below.

Lettings landlord setup services (d)

In respect of 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 that revenue can be reliably estimated before tenant move in.

All revenue is therefore attributable to this single Performance Obligation. This revenue is recognised over time on a straight line basis between the instruction to list the property to let and tenant move in, as the customer receives the benefits of the Landlord Setup Services are performed.

Costs associated with Landlord Setup Services revenue include commissions paid to the Group's 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 deferred income.

Previous accounting policy and impact of adoption of IFRS 15

Under the Group's previous accounting policy, Landlord Setup fees were recognised only at tenant move in when consideration in respect of each individual contract became certain.

Therefore, on adoption of IFRS 15, the amount of reported accrued income has increased, and the amount of reported revenue has increased. The impact of the relevant adjustments revenue for the 6 months to 31 October 2017 and for the year ended 30 April 2018 is shown within "Other" revenue in table 7 below.

Lettings monthly management services (e)

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. There is no change under IFRS 15 to the Group's previous accounting policy of recognising these fees over the period of the tenancy.

2.4 Restatement for prior period error

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.

There was an error in the brought forward share based payment reserve at both 1 May 2016 and 1 May 2017, with an equal and opposite compensating error in retained earnings at £975k. This error, which was due to the incorrect application of the vesting period of the options resulting in an understatement of the SBP expense recognised, has been restated. There was no impact on reported earnings or net assets.

3. Segmental reporting

The Group trade is managed as a single division, providing services relating to the sale of properties however management report to the Board 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 it owns a Company in: UK, Australia, the US and Canada. During the period, no customer contributed 10% or more of the Group's revenues (six months ended 31 October 2017 - none; year ended 30 April 2018 - none).

The following is an analysis of the Group's revenue and results by reporting segment:

Restated for IFRS 15 adjustments - H1 2018

Unaudited

Analysis of revenue by contract type