Risk management

Our risk management framework

Risk management is integral to the way we manage the Group and the heads of each business function monitor and report on their most significant risks on a continuing basis. All risks are consolidated, shared and reviewed by the senior management team and the Board, which agrees on the principal risks. We seek to manage identified risks, rather than eliminate them, so as to provide reasonable mitigation against material misstatements or loss within the business. The Board reviews the risks facing the business on a quarterly basis to determine the level of risk that can be accepted in pursuit of the Group’s strategic goals. Assessing the nature of these risks, the level of risk they present to business performance, and the manner in which these risks may be mitigated is critical for the success of our business over the long term. As the business grows and evolves, the Board regularly reviews its risk appetite and governance structure to ensure it is appropriate.

The principal risks facing the business, along with details of the potential impact and the ways in which the Board aims to mitigate them, are set out below.

The risks below were correct as at 30 April 2020.

Principal risks

The UK government's advice to refrain from selling properties and enforced social distancing in the UK and Canada resulted in a significantly reduced level of new instructions.

The duration and severity of any restriction of trade caused by the pandemic will determine the extent of any adverse impact on overall business activity, cash flow and profits.

The Group derives a material share of its revenues from the UK and Canada. The Group is largely dependent on the macroeconomic conditions in the UK as well as being exposed to changes in macroeconomic conditions internationally.

As an estate agency the Group’s fortunes are closely linked with those of the housing market and the broader economy as a whole in the countries in which we operate.

Economic uncertainty, such as that created in the UK by Brexit, can adversely affect the Group’s performance.

The success of the Group is dependent on maintaining scale through market share while operating in a competitive sector where there are many alternatives for the customer and the potential for new entrants.

The actions of competitors, and/or our own inaction, could have a significant and adverse impact on performance.

The Group has established an identifiable and respected brand which could be damaged by factors such as unethical or unlawful activity, poor customer service, negative customer reviews or negative press.

Customers considering instructing Purplebricks could see positive references from existing customers as an important part of their decision making. As such, a failure to either deliver a professional service to existing customers or elicit positive reviews could impact our ability to grow.

The Group’s success is dependent on the quality of its management, operational teams and agents. Our failure to attract, retain and develop the required skills and to continue to evolve our culture could result in an impact on the delivery of our service to customers and our strategic goals.

The Group operates in a sector with an evolving legal and regulatory environment and monitors developments to ensure legal, regulatory and ethical compliance. Failure to do so would adversely impact the Group's reputation and operations. As referred to in the Financial Review section of the Annual Report 2020, during the year the Group incurred a fine from HMRC for historical breaches of certain aspects of the UK’s anti-money laundering legislation.

The estate agency services we provide are performed by a network of self-employed agents who are independent of the Group. Any failure by the agents to comply with applicable laws and regulations in respect of their own business activities could be detrimental to them and the wider Group.

The Group’s website and IT environments could be the target of cyber-attacks, which could result in significant operational disruption and/or data loss.

Non-compliance with legal or other regulatory requirements relating to customer data security and data privacy in the course of our business activities could result in significant reputational or financial damage to the Group.

Inaccurate financial information may result in suboptimal decisions being taken by management and inadequate financial controls could result in financial loss to the Group.


How they are monitored and managed

The Group acted swiftly, followed government guidelines and ensured the safety of staff, agents and customers was made a priority.
Marketing and non-essential spend was stopped during the period of lockdown to manage costs and preserve cash to ensure the business emerges strongly once restrictions are lifted.

The Group has made use of the Coronavirus Job Retention Scheme and other government support to offset some of its staff costs during the period and preserve team roles to the fullest extent possible.

Additionally, we created an LPE support fund dedicated to supporting our self-employed agents (Local Property Experts) in the event they did not have access to government support.

The local market conditions in our UK and Canadian markets are closely monitored and reported on, and the macroeconomic conditions of the countries we operate in are under close review.

The Group has a flexible, scalable cost base, which enables it to react quickly and effectively to changes in market conditions (as demonstrated during the COVID-19 pandemic).

The Group's investment in marketing, service and technology has delivered a scalable, well-known and trusted brand.

We will continue to invest in our brand and in our innovative platforms to maintain a competitive advantage.

The Group actively monitors its brand sentiment and Net Promoter Scores to ensures its marketing and services reflect customer needs.

The Group strives to maintain its reputation for being a trusted estate agency service provided at a fixed fair price and monitors its customer feedback, both direct and through third-party providers, on a real-time daily basis.

We have recently recruited a Chief People Officer to drive the people agenda and culture change programme. We have created a strong employee brand, and invest in the recruitment, development and retention of our teams to maintain employee engagement and loyalty.

We operate ongoing monitoring of developments within the industry, embedding any changes within our systems and processes.

The Board and Audit Committee are regularly updated about changes to the regulatory environment and any particular challenges these may create.

Ongoing improvements to controls and processes have been made with regard to anti-money laundering checking to prevent recurrences.

A restructure of the field teams in early 2020 provided a robust performance management and operating structure for agents and territory owners. In addition, the Group has a dedicated management team in place to manage and support its self-employed agents, while the Group’s Compliance Team monitors adherence to laws and regulations.

The Group’s dedicated Technology Team monitors the resilience of our IT systems on an ongoing basis to ensure that customers and their data are protected.

Regular penetration testing and Distributed Denial of Service (DDoS) are undertaken across the Company’s IT estate and the Technology Team is alert to the technical abilities of hackers.

GDPR legislation is considered as part of every digital development to ensure we embed compliance within the Group's processes. Further, all staff receive training on security, data protection and compliance matters.

The systems of internal controls deployed within the Group are designed to prevent financial loss, and improvements continue to be made in the control environment and procedures.

Controls are strongest in areas where management considers the potential exposure to the Group of material loss or misstatement to be at its greatest, including areas such as bank accounts, cash collection and revenue recognition.