Purplebricks CFO on the power of disruption

Purplebricks is unquestionably a disrupter in the estate agency space. Like so many tech-driven businesses that have shaken up other sectors, Purplebricks has aggressively attacked a market with a model that undermines traditional methods.

With its bright purple livery and cheaper offer to consumers, Purplebricks has certainly made a big impact, snatching four percent of the UK market share of new listings and 5.3 percent of all properties sold since it was launched  in 2014. For James Davies, CFO of the group for half of that time, the experience has been an eventful time, with launches overseas and changes in direction in response to shifting market conditions.

Although Purplebricks has grown dramatically, building out in other territories, it has pulled the plug on its US and Australian business to focus on the UK, Germany more recently Canada. Its share price – which grew rapidly to a point where the group was worth over a £1bn two years ago – has shrunk to a third of that level.

Many would argue that the rollercoaster that has been the Purplebricks story is par for the course for a fast growth company, especially a disrupter. In its annual results for the year ending April 30 2019, the online estate agency posted an operating loss of £52.3m, up from £27.8m in 2018, but reported a UK operating profit of £5.3m. Total revenue rose by 55 percent to £136.5m and UK revenue increased by 21 percent to £90.1m.

For Davies, having to explain the group’s business model despite the challenges in its way, is an aspect of his role he relishes, having spent early years of his career in corporate finance at Close Brothers side and then Deutsche Bank – much of that time in the tech space.

“The great thing about being a banker is that you get to understand how the City really works and investor relations comes naturally when you join a corporate. I really got to understand the nitty gritty of the capital markets and fund management, how investors assess an opportunity, what they need to make decisions and what style and approach they welcome,” he says.

Davies joined Close Brothers from Deloitte’s tech team, having studied accounting at Warwick University, and advised numerous tech firms raise funds and undertake IPOs, with many growing to £1bn-plus valuations, “and then more interestingly, from 2000 to 2006 we then helped them in the downturn, gain as much value as possible in a very tough market ahead.

“I think the eight years I spent within the technology sector team at Close Brothers Corporate Finance were probably the most informative years of my career because I got to work with interesting, very bright and entrepreneurial individuals who knew how to make the most of the favourable market conditions up until 2000 and then how to derive deep value as the tech bubble burst.”

At Deutsche Bank it was a similar boom and slump journey, given the financial crisis impacted half way through, except with big ticket clients – many in the FTSE-100. But Davies left investment banking in 2011 to fulfil a desire to become a CFO that he had held since university days.

“During my three years at Deloitte post University, my aim was always to become a CFO. I thought hard about the most effective route to follow. The combination of Close Brothers and Deutsche Bank provided extremely deep and well-rounded experience on how you can develop real value within an organisation. This has proved very helpful during my CFO journey,” he adds.

Davies was hired for a strategic finance role at UBM, a FTSE-250 business-to-business (B2B) media group, acting as number two to group CFO Robert Gray in a role that also included IR and FP&A, just as “they were bang in the middle of the shift from print media to digital media, so a very interesting time to join,” he says.

A short stint at retail giant Kingfisher was followed by the opportunity to be CFO of gambling giant William Hill’s online division, just as online gaming was taking off in a big way. “It was a role much more suited to the future path I wanted to take within a commoditised digital environment where data is a key value driver. I had also worked within the sector during my time at Deutsche Bank so I understood the value drivers and the key competitive dynamics,” he says.

Davies relocated to Gibraltar for the role, which he describes as “a tough training ground in terms of digital, because the customer base is typically promiscuous, they’ve got limited brand loyalty and can switch site in a nanosecond on their phone. In that sector, to be a success, you’ve got to get the basics of acquiring customers and user experience spot on. It was a really good learning ground for everything I’ve done since then,” he says.

Top finance role

Joining Purplebricks “represented the number one public company CFO role I’d been striving for”, says Davies. “I was looking for a forward-looking company that was in a disruptive phase, where I felt I could be most effective, both culturally and technically. I was fortunate that the right role was available, just when I was looking. The chairman conducted my first interview and I could tell straight away that this was a fast-paced, highly-energised organisation,” he says.

Davies felt he had acquired the right skill set from a technical point of view from his accounting degree and time at Deloitte, and the outward facing part from his time as a banker. But the last role at William Hill’s online arm provided the key elements to take on the Purplebricks CFO position. “At William Hill, there was a group CFO above me, although the vast majority of the value within the group, the part that moved the share price, was within the online business,” he says.

On arrival at Purplebricks, Davies set about applying the digital skills he had learned to drive deep insights “using all the benefits of digital in terms of cross-selling, efficiencies and transparency into a sector that’s a bit behind the curve in terms of tech,” he adds.

In order for finance to play a critical role in this process, Davies is pushing for greater integration with the rest of the business. “The business information (BI) team sits within finance, works extremely closely with the digital and marketing teams, and they’re getting more and more joined up.

“That is a key development that’s going to continue, understanding and using data in every aspect of the funnel in the same way I did at William Hill. This objective has gained further momentum following the appointment of Vic Darvey as CEO last year. Vic’s was MD of Moneysupermarket.com and also worked at Lastminute.com – Vic is a pure digital operator. ”

“We have unrivalled data on when people physically move as opposed to people in the market thinking of moving, that is a key aspect of our  strategy,” he says.

Davies is very keen on business partnering to ensure finance works closely with all aspects of the business including the Solihull-based contact centre and the divisional sales leaders as well and the tech and marketing teams.

“The aim is to encourage customers to self-serve as much as possible and to use the website for basic tasks such as booking viewings – this way phone calls can be spent helping customers with more complex inquires. We get over a million calls a year into our contact centre, and around a quarter is to book viewings,” he reveals.

“With the exception of a lettings business, the whole company is run from Solihull and we don’t have any high street presence. We have a very cost-efficient operation on a small business park near Solihull, and that’s where all the individuals are based. The effectiveness of the work environment has improved a lot over the last nine months or so as we move further towards a modern contact centre workspace and an overall operation with a deep routed digital mindset,” he adds.

To reinforce the finance team Davies recruited new blood. “My first hire was to employ a solid financial controller, the most important hire when you’re a group CFO within a relatively raw high growth listed business. I also built legal, compliance, IR, FP&A, treasury functions, as when I joined we were three years old and there was deep routed start up culture with lean teams,” he says.

“More than just pure finance, I like rounded individuals within the finance team who can collaborate naturally with different parts of the business and not just be seen as gatekeeper, but as a facilitator. It took a while to find the right individuals, although I always think it’s worth it to get right people,” says Davies.

Managing the challenges

In the three years he has been at Purplebricks, Davies has experienced highs and lows as the online estate agency has sought to capture new markets.

In attempting to replicate the UK model overseas, Davies says: “The group’s strategy moved too quickly and when the market conditions within the US and Australia were below average at the time of entry, the odds of success were against us. Our global strategy has now been finessed and is limited to the UK, amounting to approximately three quarters of revenues, Canada and Germany.

“If you look at what the company achieved before I joined, and in the first six to nine months afterwards, the growth was exceptional. We are the number one player in the UK market, and have been for some time,” he insists.

But he also concedes the group’s ambition misfired somewhat, leading to the retreat from the US. “We probably started a bit aggressively when we entered the US. For example, we launched in LA, and we went into seven other states relatively quickly.

“One learning I’m taking away is that we really should have gained meaningful market share in the LA market before we expanded further. We’re taking that learning into our Canadian business, in the English speaking regions, where we’re growing in a disciplined way, focusing on the big conurbations as opposed to trying to cover all postcodes. This strategy in the English regions of Canada is proving very effective,” he says.

An acquisition 18 months ago saw Purplebricks buying a key player in Canada’s disruptive space with around a fifth of the market in Quebec and a growing business in English speaking Canada. “We’re using all the learnings from the US and making it work in Canada,” says Davies.

He puts the share price decline down to a correction following exuberance over the group’s rapid acceleration plans for diversifying overseas. “I think there was over excitement around the transfer of our model overseas and the fact that we achieved so much so quickly within the UK market”.

Davies insists the group is not geared specifically to a high-volume environment and therefore less adept to meet the challenges of a slowing market, and says investors are comfortable with the Purplebricks story.

He is also quick to rebuff any suggestion that fake ratings feature amongst the near 80,000 reviews undertaken on Purplebricks – a key element of the market. “We check every Trustpilot review we get to ensure they are credible and authentic. We’ve also really proud to have just won the Gold Feefo award for the second year running,” he says.

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