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McGrath Estate Agents plans to remove approximately $5 million of annualised costs from the business at a one‐time restructuring cost of $1.4 million to $1.6 million, the company has said as it admits to poor performance in a trading update ahead of its AGM scheduled for later this month.
Most of these savings will be achieved by restructuring the board and executive leadership team, removing management associated with M&A and company-owned office expansion activities and non‐revenue-generating roles across the organisation.
McGrath has completed the first four months of trading for FY18 and the company’s financial performance has fallen short of expectations at both the revenue and EBITDA levels, the update revealed.
It goes on to show company-owned sales as the culprit for the underperformance, which was influenced by several factors including a drop in listings, agent loss and a “significant” slowdown in the project marketing segment.
But CEO Cameron Judson was optimistic about the high-profile real estate group’s future.
“We are one of Australia’s largest residential real estate services companies and we continue to leverage the underlying strength of the McGrath brand, quality of its sales agents and network reach,” the CEO said.
“Our aim has been to grow the relative contributions of each of our annuity businesses in property management, franchise and Oxygen, and de‐risk the volatility of our earnings in project marketing and company-owned sales.”
The franchise and property management businesses are performing to expectations, and the events and training business is performing well, according to the statement.
McGrath has not given earnings guidance for FY18, but has noted equities research by Bell Potter which gives a full-year estimate of $16.6 million EBITDA.
But in the absence of an improvement in market conditions or a major cost-out program, the statement makes clear that the board does not expect EBITDA for FY18 to reach $16.6 million.
It also believes that it is prudent to assume continued subdued market conditions, especially in project marketing.
Accordingly, it is assessing a range of measures, including the optimal level of cost reductions, balancing shareholder earning requirements with longer term objectives.
The statement also said that the board and executive will look to balance “short and long-term imperatives”, but noted that they are often at odds with each other.
It said that FY18 earnings could be 25 per cent lower than the current estimate by analysts due to high restructuring charges and a partial year of cost savings. On a full year, the earnings would be within 10 per cent of that estimate.
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