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Challenging year prompts second successive McGrath net loss

Nick Hall

Franchised real estate agency McGrath has recorded its second successive full-year net loss. The McGrath net loss follows sliding property prices, diminishing rents and a drop in the total number of homes for sale.

While the McGrath net loss of $15.6m in the 12 months to June 30 is a blow, it pales in comparison to last year’s $63.1m drop. According to the results, McGrath’s full-year revenue from ordinary activities fell by 17 per cent to $82.7m.

“Market conditions and an evolving real estate industry structure have demanded that we adapt our business, reduce our cost base and move swiftly to right size for the conditions we are currently facing,” McGrath chief executive Geoff Lucas said.

McGrath, which operates in NSW, the ACT, Queensland and Victoria, said sales volumes in the year to June slipped 21.9 per cent in Sydney, 27 per cent in Melbourne and 13.4 per cent in Brisbane.

The realtor calculated average home prices fell 9.9 per cent in Sydney, 9.2 per cent in Melbourne and 2.6 per cent in Brisbane.

Technology roll-out

In addition to challenging market conditions, Lucas also revealed the brand is in the midst of a technology overhaul, which he expects to greatly improve franchise operations.

The new data driven system has already been rolled out to 50 of McGrath’s 98 current offices in five months, with the initiative expected to be completed by December 2019.

“This has enabled us to focus on servicing our agents and consumers with access to quality data, generating enhanced productivity and customer engagement,” Lucas said.

Franchising

Similar to company-owned outlets, McGrath’s franchised offices also reported softer performance over FY19.

Revenue from franchise outlets fell by 26 per cent to $8.1m, down from $11.0m for the corresponding period last year.

Despite the McGrath net loss, Lucas confirmed that McGrath had recommenced a further roll-out of premium franchise offices in key markets along the Eastern Seaboard, including three strategic acquisitions added over FY19. Two acquisitions were market leaders who returned to the business, after operating their own franchise businesses outside McGrath.

“McGrath has consciously focused on a reduction in company owned and franchise agents as lower performing agents transition to be an associate agent in a super team or exit the business,” Lucas and CFO Howard Herman explained in the annual results presentation.

McGrath’s company owned sales – a segment that earns from property sales commissions and marketing fees – made of a loss of $2m as listing numbers shrank and real estate values dipped.

Factors impacting McGrath’s results

McGrath was also hit by a drop in rental prices, with the total number of properties under the company’s management rising 6.0 per cent to 7,627 but earnings falling 12 per cent compared with the previous financial year.

Earnings before interest, tax, depreciation and amortisation came in at $5.4 million for the segment of the business, affected by “lower rental value per property”.

Lucas said McGrath was optimistic about the future, adding that “we have seen improved buyer sentiment in recent months” and “this sounded the bell for property market stabilisation”.

“However, further interest rate reductions, as welcome as they may be, signal a challenging mid-term economic outlook,” he said.

Source: Michael Mehr, AAP