Slump in instructions sees Purplebricks swing to a £20m loss

Online estate agents Purplebricks has been hit by £20m losses after a tough six month period that saw it lose market share and become aware of a potential liability in its letting business caused by problems going back to 2012.

The property group is trying to turnaround the business after its early successes as a technology disruptor were found to be built on shaky foundations.

Purplebricks shares have lost 95% of its value in the last five years and the business which was once worth more than £1bn is now valued at just £60m.

Its difficulties continued in the half-year to October, although chief executive Vic Darvey believes Purplebricks’ performance will soon improve.

He said: “The first half was undoubtedly challenging, with the implementation of a major change to our operating model coinciding with the UK property market experiencing a substantial fall in new instructions.

“This dynamic led to a disappointing financial performance but we are confident that we now have the right levers in place to drive a stronger financial performance going forward.”

Losses for the six months to October came to £20.2m. A small operating loss was exacerbated by a provision of £3.6m relating to potential claims arising from process issues within its lettings business, £2.7m impairment of goodwill, and a £7.3m charge from derecognition of deferred tax assets.

The Solihull-based group’s revenues fell 7% to £41.3m – although it benefitted from revenue earned in the prior period – as instructions dropped by 38% and its market share fell by one-fifth, to 3.9%.

Purplebricks also faces a potentially-significant future liability of up to £30m after an issue was recently found in its letting business.

It had failed to correctly service legally-required documents to tenants explaining that their deposits have been placed into the national protection scheme.

Failure to do this within 30 days of a deposit being paid could lead to tenants claiming back up to three times the value of what they have put down on their new home. They can do this up to six years after the deposit payment was made.

Darvey said: “Our lettings business, while relatively small, has significant potential. We were disappointed by the process issues that we became aware of in our lettings business in December.

“These are being corrected and a root and branch review of the lettings business has been completed in relation to our processes and procedures.”