REG - LSL Property Svcs. - Final Results 2020 & Strategic Update
28/04/2021 07:00
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RNS Number : 7891W LSL Property Services PLC 28 April 2021
28 April 2021
LSL Property Services plc ("LSL" or "The Group")
FINAL RESULTS, VERY STRONG TRADING IN Q1, 2021, RESUMPTION OF GUIDANCE AND
REINSTATEMENT OF DIVIDEND POLICY
LSL reports highly resilient full year financial results for the year ended 31
December 2020, followed in the first quarter of 2021 by very strong financial
performance and trading momentum. LSL also sets out its strategic roadmap,
with financial services at the forefront, recommences guidance, with an
improved growth profile, and reinstates its dividend policy.
KEY HIGHLIGHTS
In an exceptional year dominated by the unprecedented impact of COVID-19, LSL
delivered a highly resilient 2020 financial performance
· Group Underlying Operating Profit(1) (pre COVID-19 costs) increased
to £41.5m (2019: £37.0m)
· Group Underlying Operating Profit (post COVID-19 costs) of £35.2m
· Profit before tax increased by 31% to £20.9m
· Historically low reported Net Bank Debt(2) at 31 December 2020 of
£1.6m (2019: £41.9m)
Underlying Operating Profit supported by further growth and focus on Financial
Services, and strong H2 recovery across all divisions following the end of the
first COVID-19 "lockdown"
· Financial Services Division Underlying Operating Profit(1) (pre
COVID-19 costs) increased 16% to £13.5m
· LSL mortgage completion lending increased 3% to £32.6bn, with a
total market share increased to 9%(3)
· Total financial advisers grew by 8% to 2,585 (2019: 2,392)
· Surveying Division performance recovered strongly from the lockdown
in H1, with Underlying Operating Profit(1) (pre COVID-19 costs) up 30% in H2,
to leave full year profit (pre COVID-19 costs) up 9%
· Estate Agency Division Underlying Operating Profit(1) (pre COVID-19
costs) increased by 8%. After being materially impacted in H1 by COVID-19,
performance recovered quickly in H2, with the residential exchange pipeline at
31 December 2020 more than 65% above the same date in 2019
Significant progress in developing and executing clear Financial Services led
growth strategy supported by strong balance sheet
· Strategic roadmap set out, with focus on significant growth
opportunities in Financial Services
· Announcement on 27 April 2021 of five-year agreement to provide
digital and face-to-face mortgage and protection advice to The Property
Franchise Group plc's expanded network of over 430 physical office locations
· Announcement on 23 April 2021 of up to £200m to be invested by
Pivotal Growth joint venture with Pollen Street Capital as part of LSL's
strategy to develop a pre-eminent position in the mortgage intermediary market
· Announcement on 11 February 2021 of the acquisitions of the business
and assets of Mortgage Gym Limited and a 60% stake in Direct Life Quote
Holdings Limited, as part of LSL's digital strategy to drive significant
growth in mortgage and protection business
· Senior appointments made to improve management bench strength
· Announcement on 24 February 2021 of new banking facility, with a
maturity date of May 2024, which will give the Group balance sheet flexibility
to take advantage of attractive opportunities in the market, particularly in
financial services
Very strong financial performance in the first quarter of 2021, building on
the positive trading in 2020
· Group Underlying Operating Profit for Q1 2021 was £13.1m,
significantly higher than comparative periods for 2019 of £2.1m and 2020 of
£3.4m, benefiting materially from strong trading conditions, the conversion
of the larger pipelines, cost control, including the reshaping of the LSL
Estate Agency networks during Q1 2019
· Each of LSL's Divisions delivered material increases in financial
performance in Q1 2021 compared to the same periods in 2019 and 2020
· Mortgage completions for Q1 2021 increased to £9.3bn, ahead of 2019
and 2020 by 29% and 22% respectively
· Financial adviser numbers have grown strongly, with an increase of 4%
since 31 December 2020, and 14% year-on-year as at 31 March 2021. The pipeline
of advisers also increased further over the significant pipeline at 31
December 2020
· Surveying revenue in Q1 increased by 4% compared to 2019, and 5%
compared to 2020. There was a significant ramp up of activity as the quarter
progressed, with revenue in March 2021 up 13% compared to the same month in
2019, and up 28% compared to COVID-19 impacted March 2020
· Estate Agency like-for-like Residential Sales exchange income in Q1
2021 was up by 57% on 2019 and 61% on 2020, as very strong pipelines converted
· The Residential Sales exchange pipeline remained very strong at the
end of the quarter, at 48% more than 2019 and 25% more than 2020 at the same
comparable date and remains almost unchanged from the large pipeline reported
at 31 December 2020
· Marsh & Parsons performed strongly, with total revenue in Q1 up
18% over 2019 and up 13% compared to 2020
· Net Bank Debt at 31 March 2021 was £8.3m (2020: £42.1m). Adjusting
for COVID-19 related deferrals, mainly in relation to VAT, the underlying Net
Debt position was approximately £17m
The Board is reassured by the resilience of the Group's businesses and,
encouraged by continued strong trading in April, is restarting guidance with
an improved growth profile with Financial Services at the forefront, and is
resetting LSL's dividend policy to provide flexibility to take advantage of
inorganic opportunities
· Continued very strong front-end sales metrics in each of LSL's three
Divisions in April 2021, ahead of internal expectations and 2019 (comparisons
to 2020 are not meaningful given the lockdown at that time)
· PRIMIS mortgage applications in April are tracking significantly
ahead of 2019 and 2020
· With 2019 as a normalised base year, given the strong Q1 trading and
financials, we believe that the Group should deliver 2021 Group Underlying
Operating Profit significantly ahead of 2019, with further growth expected in
subsequent years
· By 2023, for the first time, we expect the Financial Services
Division to be the largest profit contributor to the Group
· The dividend policy has been reinstated and rebased, with an expected
pay-out of 30% of Underlying Operating Profit after finance charges and
normalised taxation. No final dividend declared for 2020.
· This guidance assumes no material new impact on markets from any
re-emergence of the COVID-19 virus
Commenting on today's announcement, David Stewart, Group Chief Executive,
said:
"Our financial performance during 2020 highlighted the resilience and strength
of our Group. The work we have been able to complete on our strategy
emphasises our exciting future, in which Financial Services will be our chief
engine of growth and enhanced profitability.
"Our PRIMIS network is one of the leading service providers to mortgage
intermediaries, whilst our heritage provides us with deep expertise in the
provision of mortgage and protection advice to estate agency customers. The
Group has invested significantly in its digital capability, which was enhanced
further by the recent acquisitions of Mortgage Gym and Direct Life and Pension
Services, and we now have industry-leading technology available. These factors
combined to make LSL a compelling partner for Pollen Street Capital and The
Property Franchise Group plc, in two recently announced strategic initiatives
that we expect to deliver significant value for our Shareholders.
"However, I would add that we have been equally encouraged by the excellent
performance of our Estate Agency and Surveying businesses. In Estate Agency
we are exceptionally well placed to benefit from the current strong market,
having increased our market share since the end of the lockdown. Our
Surveying business is similarly performing extremely well, with opportunities
to broaden its product set to lenders and customers.
"This progress could not have been made without the hard work and commitment
of colleagues working across the Group and I would like to thank them for
their exceptional effort and support.
"With current market conditions supporting growth in all of our businesses, I
believe LSL is exceptionally well-positioned to continue to grow both
organically and via acquisition and we look forward to the future with
confidence."
2020 2019 %
£m
£m
change
Group Revenue 266.7 311.1 -14
Group Underlying Operating Profit - pre COVID-19 costs(1) 41.5 37.0 +12
Operating Margin - pre COVID19 costs (%) 15.6 11.9 +370 bps
Group Underlying Operating Profit - post COVID-19 costs(1) 35.2 37.0 -5
Operating Margin - post COVID19 costs (%) 13.2 11.9 +130 bps
Exceptional gains 0.7 2.5 -72
Exceptional costs (7.1) (15.7) -55
Group Operating Profit 23.9 19.7 +21
Profit before tax 20.9 16.0 +31
Basic Earnings Per Share(4) (pence) 15.9 12.6 +26
Adjusted Basic Earnings Per Share(4) - (pence) 31.9 28.0 +14
Net Bank Debt(2) at 31 December 1.6 41.9 nm
Gearing ratio(5) at 31 December (times) 0.03 0.81 nm
Final proposed Dividend (pence) nil - nm
Full year Dividend (pence) nil 4.0 nm
nm: not meaningful
Notes:
All figures quoted are for year ended 31 December 2020 unless otherwise stated
1 Group Underlying Operating Profit
is before exceptional costs, contingent consideration, amortisation of
intangible assets, share-based payments and includes £15.7m of amounts
receivable through the Coronavirus Job Retention Scheme (as set out in Note 6
of the financial statements). Segment Underlying Operating Profit is stated on
the same basis as Group Underlying Operating profit.
2 Refer to Note 11 to the Financial
Statements for the calculation
3 Market share excludes Product
Transfers
4 Refer to Note 6 of the Financial
Statements for the calculation
5 Gearing ratio is defined as Net
Bank Debt divided by Group Adjusted EBITDA (refer to Note 5 of the Financial
Statements)
For further information, please contact:
David Stewart, Group Chief Executive
Officer
Adam Castleton, Group Chief Financial Officer
LSL Property Services plc investorrelations@lslps.co.uk (mailto:investorrelations@lslps.co.uk)
Helen Tarbet
Sophie Wills
Buchanan 0207 466 5000 / LSL@buchanan.uk.com (mailto:LSL@buchanan.uk.com)
Notes on LSL
LSL is one of the largest providers of services to mortgage intermediaries and
mortgage and protection advice to estate agency customers, completing £32.6bn
of mortgages in 2020. It represents approximately 9% of the total purchase and
remortgage market with around 2,600 financial advisers. It was named Mortgage
Network of the Year by both Moneyfacts and Mortgage Introducer in their 2020
awards, as well as Best Network 300+ ARs by Mortgage Strategy.
e.surv is one of the UK's largest provider of surveying and valuation
services, supplying seven out of the ten largest lenders in the UK, employing
over 500 operational surveyors, and performing over 500,000 valuation and
surveys per annum for key lender clients. It was named Best Surveyor/Valuer at
the 2020 Mortgage Strategy awards.
LSL operates a network of 226 owned and 130 franchised estate agency branches,
with brands that include Your Move, Reeds Rains and Marsh & Parsons. For
further information please visit LSL's website: lslps.co.uk
PRIMIS is the trading style of First Complete Limited, Personal Touch
Financial Services Limited and Advance Mortgage Funding Limited which are all
authorised and regulated by the Financial Conduct Authority.
Group Chief Executive's Review
In an exceptional year dominated by the unprecedented impact of the COVID-19
virus, I am pleased to report that LSL's performance was highly resilient,
reporting Underlying Operating Profit (pre COVID-19 costs) of £41.5m (2019:
£37.0m).
This performance provided the solid foundation on which we could build for the
future and I am excited with the progress we made in developing a clear and
compelling vision for the LSL Group, including our plans to leverage our
existing leading positions in the mortgage and protection advice markets. The
recent announcements of the acquisitions of Mortgage Gym and DLPS and our
strategic partnerships with Pollen Street Capital and The Property Franchise
Group underline the significant potential of our Financial Services
businesses.
Response to COVID-19 and General Election
The start of the year saw strong trading as the decisive December 2019 General
Election result brought stability to the housing market and wider economy
following an extended period of uncertainty in the wake of the Brexit
referendum and subsequent political instability. Each of our trading
divisions performed well, reporting results in both January and February ahead
of the corresponding period in 2019.
During this period, the Board confirmed reports that it was considering the
advantages to Shareholders of a possible combination with Countrywide plc,
although discussions remained at an early stage.
By February, the significance of earlier reports of the COVID-19 outbreak in
China started to become more evident and the Board responded quickly to this
information. We suspended consideration of any merger with Countrywide plc,
before announcing that the full year dividend for 2019 would be suspended
until the position became clearer, in doing so becoming one of the first
companies to take this step. The delivery of long-term value to Shareholders
remains our highest priority, so this was not an easy decision to take.
However, as we entered a period of great uncertainty, it was an essential
measure to preserve the Group's strong cash position, and one that subsequent
events were to justify quickly.
This decisive approach was demonstrated further in the lead-up to the March
2020 lockdown. The Board prepared detailed contingency plans, with our
overriding priority throughout being the health and safety of colleagues and
customers alike.
In terms of our business, we recognised immediately that cash conservation
would be essential to maintaining the future strength of LSL and a series of
further measures were introduced to this end, including the scrapping of
salary rises otherwise due to take effect in April, and the deferral of all
other non-essential cash expenditure. The Board also recognised that it would
be inappropriate to declare any dividends for 2020. Further information is
included in the Operational and Finance Reviews contained in this
announcement. The success of these steps, combined with the Group's
historically prudent approach to debt as well as the assistance afforded by
the Coronavirus Job Retention Scheme, meant that on 5 June 2020, we were able
to confirm that after undertaking stress testing which assumed significant
stress throughout 2020, the Group would retain sufficient liquidity throughout
the year.
Development of Business Model
This period also saw us demonstrate further our agility and the increasing
diversification of our business model, which over successive years has seen a
reduced reliance on housing market cycles. Staff right across the business
found effective ways of working remotely, whether through the provision of
mortgage advice via video link or valuations on properties where the use of
data negated the need for a full physical inspection to verify a minimum
value. In Estate Agency, tenants tended to stay in their property resulting in
high levels of recurring Lettings Income.
This speed of response was similarly evident when the Government eased
lockdown restrictions, and we moved quickly to meet pent-up demand and
increased levels of new business as our mortgage and protection advice,
valuations, and estate agency businesses all saw high levels of demand. The
reasons for this are varied and some parts of the Group were undoubtedly
boosted by the introduction of the Stamp Duty Holiday for properties valued up
to £500,000. Colleagues worked exceptionally hard to take maximum advantage
of these conditions for the benefit of our shareholders, helping to deliver
very strong performance for the second half of the year, with H1 Underlying
Operating Profit (pre COVID-19 costs) 17% ahead of 2019.
Environment, Social and Governance
Before turning to the future, I would like to comment on the importance the
Board places on our Environmental, Social and Governance (ESG) framework, a
comprehensive review of which will be set out in the Annual Report &
Accounts 2020. I would particularly like to highlight the launch of our
Inclusivity & Diversity and Community forums, which both form part of our
overall Staff Engagement Programme. Our Inclusivity & Diversity Forum aims
to ensure LSL provides a supportive working environment for existing and
prospective colleagues, and to ensure that all members of staff have the same
opportunity to take their career forward. The Community Forum has been
established to help maximise the impact we make in our local communities. Each
group is led by a colleague who will work with other colleagues across the
business to make a real difference in these important areas. Helen Buck
(Executive Director - Estate Agency) is supporting the Inclusivity &
Diversity Chair and Sapna Bedi FitzGerald (Company Secretary & General
Counsel) the Communities Forum Chair.
In addition, as part of our ESG strategy we have formally adopted a new
Environmental Policy which codifies our commitment to reducing our impact on
the environment through the continued development and improvement of our
environmental performance. This statement is backed with the introduction of
clear and objective targets against which we will report our performance.
Andy Deeks (Chief Strategy Officer) has senior executive responsibility for
the ESG programme as a whole supported by a dedicated senior manager.
Looking Ahead
Our financial performance during 2020 highlighted the resilience and strength
of our Group. The work we have been able to complete on our strategy
emphasises our exciting future, with opportunities in Financial Services core
to our growth plans. We have recently welcomed staff from Direct Life &
Pension Services and Mortgage Gym to the Group, businesses that will enhance
our capability in the Protection and Mortgage markets and increase the
productivity of our advisers. On 23 April 2021, we announced a joint venture
with Pollen Street Capital to "buy-and-build" a major UK mortgage broking
business, whilst on 27 April we announced that we have been selected by The
Property Franchise Group as the preferred provider of mortgage and protection
advice to over 430 physical office locations.
This progress could not have been made without the hard work and commitment of
all our colleagues, and their effort and support throughout the year has been
exceptional. I would like to thank them on behalf of the entire Board. I
would also like to express my appreciation for the support the Board has given
to myself and the rest of the executive team, which has been invaluable in
helping us to navigate what at times have been challenging conditions. I am
confident that LSL has an exciting future ahead.
David Stewart
Group Chief Executive Officer
28 April 2021
Strategy Review
About LSL
LSL is one of the largest providers of services to mortgage intermediaries,
specialist mortgage and protection advice to estate agency and new build
customers and valuation services to the UK's biggest mortgage lenders.
It also operates a network of 226 owned and 130 franchised estate agency
branches.
LSL's strategy
Financial Services is at the heart of LSL's strategy. The Group will continue
to grow its Surveying and Valuation and Estate Agency Divisions and implement
a new Target Operating Model, including a specific focus on leveraging their
capabilities to grow the Financial Services Division.
LSL already operates some of the most successful Financial Services businesses
in the UK. Through its intermediary network and club, it provided services in
relation to £32.6bn of mortgage completions in 2020, equating to just over 9%
of the total purchase and remortgage markets. LSL is also a specialist in
providing mortgage and protection advice to estate agency customers and owns
two of the UK's largest new homes mortgage advice businesses, and a number of
award-winning technologies in Toolbox, Mortgage Gym, and Direct Life &
Pension Services.
LSL aims to:
· Remain the leading mortgage network and club in the UK, further
growing market share
· Become a major player in distribution via estate agencies, as
demonstrated by its new long-term partnership with The Property Franchise
Group
· Buy and build a major national mortgage broker by executing a
"buy-and-build" strategy through Pivotal Growth joint venture
· Significantly increase revenues in all channels by optimising
existing products and services and introducing new ones, including protection,
general insurance, conveyancing and surveys
LSL believes that the Financial Services market will remain extremely
attractive, due to:
· Continued significant customer demand for mortgage, protection and
insurance advice through intermediaries
· Resilient performance through different housing market cycles -
remortgages and product transfers are a larger combined market than house
purchases and, additionally, the market for protection and insurance products
is not correlated with housing transactions
· Ability to unlock value within the Group's existing distribution and
customer base
· Opportunity to grow new distribution through strategic partnerships
In Surveying and Valuation, more than 500 operational surveyors carried out
487,000 valuations last year, serving seven of the UK's top ten lenders,
including all of Lloyds Banking Group's mortgage lending. In this Division,
LSL aims to:
· Grow profitable market share in B2B, including leveraging its
detailed market knowledge, data and expertise to offer high value insight in
specialist areas, such as cladding, new build and equity release
· Develop its Direct-to-Consumer (D2C) offer, including building a D2C
sales team and developing its D2C survey product
· Support the development of Financial Services, for example by
attracting intermediaries to the PRIMIS network through its Surveying and
Valuation proposition and offering survey products in its Financial Services
business
In Estate Agency LSL offices facilitated 21,000 house exchanges and managed
34,000 rental properties in 2020, across 350 owned and franchised locations.
The Group aims to:
· Grow profitable market share in existing catchments, for example by
investing in digital marketing presence and in technology to help the business
respond faster to valuation requests
· Improve the franchise proposition and work with existing franchisees
to support their growth aspirations and expand the Group's reach
· Support the development of Financial Services, in particular by
generating mortgage and protection leads, improving penetration of other
products such as conveyancing and surveys, and exploiting digital technology
to create a unified customer experience
Strategic themes
In delivering this strategy, LSL will focus on six core strategic themes:
1. Grow share of core markets: continue to focus on organic and
acquisition opportunities
2. Generate new sources of leads: develop, buy and/or partner to
develop
3. Build resilient revenue streams: focus on customer retention and
digital offering of products to support face-to-face
4. Introduce new products and services: develop, buy and/or partner
to generate new revenue opportunities, in line with customer needs
5. Implement New Target Operating Model and Ways of Working: focus
on revenue and cost synergies, as well as embracing digital technology
6. Deploy capital to high-growth areas: simplify the Group and
invest in areas of higher growth and return
These themes will be supported by two strategic enablers:
1. Leverage technology and digital capability: exploit existing
market-leading technology, consider new technology and, especially, use
digital to support growth
2. Hire, retain and develop talented people: continue to hire the
best people in the industry to drive growth
Direct to Consumer
Through its Estate Agency distribution, in 2020 LSL had access to customers
across 21,000 exchanges and 34,000 rental properties. In many locations and
products, the Group is very successful at generating revenue from these
transactions, such as through mortgages or conveyancing. However, there is a
significant opportunity to increase revenues by offering customers a more
consistent, comprehensive, scalable and enduring solution, supported by both
people and digital technology:
· More consistent: offered to all customers, on every transaction
· More comprehensive: offer existing products to more customers and
offer new products such as surveys
· More scalable: supporting local fulfilment with digital services,
provided by central and remote teams and advisers
· More enduring: seek to maximise the lifetime value of the customer
relationship, not just secure a point-in-time transaction
LSL will focus on unlocking value within the Group, with digital technology at
its heart, and leveraging the divisions to create value which is greater than
the sum of the parts.
Current Trading, Outlook, Recommencing Guidance and Reinstatement of Dividend
Policy
April's trading built further on the very strong performance over the first
quarter and remains ahead of previous internal expectations.
Activity in the property market has been elevated since the end of the first
National Lockdown in May 2020, and this activity continues to be supported by
favourable conditions in the mortgage market, the extension of the Stamp Duty
holiday until the end of June and the nil rate band being doubled until the
end of September. Mortgage availability has continued to improve, including
increased provision of higher loan to value mortgage products by mainstream
lenders. Furthermore, mortgage rates remain low by historic standards,
increasing the confidence of prospective house purchasers and providing
remortgage opportunities for brokers. The latest market expectations for
mortgage lending in 2021 indicate an increase of around 6% over 2019 to around
£283Bn(1). Residential property market transactions are particularly
difficult to predict, even more so in the current environment, however given
recent trends, it is expected that activity levels in the residential sales
market will remain robust.
These conditions are favourable for each of the Group's principal businesses.
However, the Group's increasingly diversified revenue streams and in
particular the significant growth opportunities identified and on which
management has started to execute mean the Group is not dependent on housing
market activity levels to drive medium term growth.
The Board is reassured by the resilience of the Group's businesses and,
encouraged by continued strong trading in April, is recommencing guidance,
which has been suspended since the emergence of COVID-19, with an improved
growth profile with Financial Services at the forefront, and is resetting
LSL's dividend policy to provide flexibility to take advantage of inorganic
opportunities.
The LSL Board has reviewed the latest management forecasts. With 2019 as a
normalised base year, given the strong Q1 trading and financials, we believe
that the Group should deliver 2021 Group Underlying Operating Profit
significantly ahead of 2019, with further growth expected in subsequent years.
In 2021, full year Group revenue is expected to be around 10% ahead of 2019,
with Group Underlying Operating margin increasing by around 250bps compared to
2019 and strong profit growth delivered from each Division, resulting in Group
Underlying Operating Profit expected to be significantly ahead of 2019. This
includes initial investment expenditure related to the recently announced
strategic financial services partnerships with Pollen Street Capital and The
Property Franchise Group, which will drive further growth in the medium term.
LSL is highly cash generative and expects to end 2021 with very minimal debt,
providing balance sheet flexibility to take advantage of investment
opportunities.
LSL expects to drive further attractive growth as the benefits of its
financial services led strategy deliver an increasing proportion of Group
profits. By 2023, for the first time, the Financial Services Division is
expected to be the largest profit contributor to the Group.
In light of the uncertainty resulting from the emergence of the COVID-19
virus, and the subsequent significant Government support provided across the
economy, the Board determined it was inappropriate to pay dividends. The
final Dividend for 2019 previously announced was cancelled, and the Group has
not declared either an Interim or final dividend for 2020. This amounts to a
total of £20.5m in payments not made when compared to the Board's previous
dividend policy.
The LSL Board is confident of the growth prospects for the Group and
recognises that the payment of a dividend is important for many of its
existing and prospective Shareholders. LSL confirms that it intends to
reinstate dividends, with dividend payments expected to recommence in the
second half of 2021 following the release of the Interim Results. The Board
has considered its dividend policy and alternative uses of capital for the
benefit of Shareholders and believes that an expected annual pay-out of 30% of
Underlying Operating Profit after finance and normalised tax charges is
appropriate, with broadly a 1:2 ratio between Interim and Final Dividend. This
will maintain dividend cover at roughly three times earnings over the business
cycle. The Board will review capital allocation regularly to ensure LSL
maintains an efficient balance sheet.
Notes:
1 Intermediary Mortgage Lenders Association's ("IMLA)
current estimate of gross new lending for 2021 - January 2021
Business Reviews
Group Summary
Group Financials Summary H1 H2 FY
2020 2019 Var 2020 2019 Var 2020 2019 Var
P&L (£m)
Revenue 114.9 154.1 (25)% 151.8 157.0 (3)% 266.7 311.1 (14)%
Group Underlying Operating Profit(1) 12.5 12.2 3% 29.0 24.9 17% 41.5 37.0 12%
(pre COVID-19 costs)
Group Underlying Operating margin 10.9% 7.9% 300bps 19.1% 15.8% 330bps 15.6% 11.9% 370bps
(pre COVID-19 costs)
Group Underlying Operating Profit(1) 9.7 12.2 (20)% 25.5 24.9 2% 35.2 37.0 (5)%
(post COVID-19 costs)
Group Underlying Operating margin 8.5% 7.9% 60bps 16.8% 15.8% 90bps 13.2% 11.9% 130bps
(post COVID-19 costs)
Division Underlying Operating Profit(1)
(pre COVID-19 costs)
Financial Services 4.9 4.3 14% 8.5 7.3 17% 13.5 11.6 16%
Surveying 4.9 6.3 (23)% 13.0 10.0 30% 17.9 16.3 9%
Estate Agency 4.1 4.0 3% 11.4 10.4 9% 15.5 14.5 8%
Unallocated Central Costs (1.4) (2.5) (45)% (3.9) (2.9) 36% (5.3) (5.4) (1)%
Group Underlying Operating Profit 12.5 12.2 3% 29.0 24.9 17% 41.5 37.0 12%
(pre COVID-19 costs)
Division Underlying Operating Profit(1)
(post COVID-19 costs)
Financial Services 4.6 4.3 7% 7.6 7.3 4% 12.3 11.6 6%
Surveying 4.1 6.3 (35)% 12.1 10.0 21% 16.2 16.3 (1)%
Estate Agency 2.4 4.0 (40)% 9.7 10.4 (7)% 12.1 14.5 (16)%
Unallocated Central Costs (1.4) (2.5) (43)% (4.0) (2.9) 36% (5.4) (5.4) (1)%
Group Underlying Operating Profit 9.7 12.2 (20)% 25.5 24.9 2% 35.2 37.0 (5)%
(post COVID-19 costs)
Notes:
1 Group Underlying Operating Profit is before exceptional
costs, contingent consideration, amortisation of intangible assets,
share-based payments and includes £15.7m of amounts receivable pursuant to
the Coronavirus Job Retention Scheme and utilised to pay employee salaries for
those placed on furlough (as set out in Note 5 of the Financial Statements).
Divisional Underlying Operating Profit is stated on the same basis as Group
Underlying Operating profit.
After a highly resilient performance in a COVID-19 impacted H1 2020, which
reflected operational agility and careful financial management, in H2,
following the reopening of the property markets, performance recovered
strongly, as colleagues returned to work from furlough, re-built pipelines,
delivering improving financial performance as H2 progressed, and setting up a
strong platform for Q1 2021. High standards of service to customers were
maintained throughout, despite many colleagues still working from home during
the latest lockdown.
In 2020, LSL's markets were materially impacted by COVID-19, with total
mortgage lending down 9%(1), total mortgage approvals down 10%(2) and UK
housing market transactions down 11%(3). LSL's financial performance was
highly resilient given these headwinds.
Group Revenue decreased by 14.3% to £266.7m (2019: £311.1m), impacted by
COVID-19, the planned reduction in February 2019 of 164 estate agency branches
to reshape the Your Move and Reeds Rains networks, and the tenant fee ban
introduced in June 2019.
Group Revenue in H1 2020 reduced by 25%. Much of this reduction resulted from
the restrictions arising from the first national lockdown, between 23 March
and 13 May 2020, which affected the last weeks of Q1 2020 and much of Q2 2020
trading, as the entire network of 356 owned and franchised estate agency
branches was closed, with other activities restricted, including physical
valuations by surveyors, home moves and viewings.
Following the reopening of the property markets during May 2020, revenue
performance increased steadily throughout the second half, with total Group
Revenue for H2 behind by just 3%. Group Revenue in Q4 recovered to be 4% ahead
of the same period in 2019, with particularly strong December trading as
reported on 15 January 2021. Given the lead time between initial activity and
revenue being recognised, the recovery in underlying trading conditions was
somewhat greater than indicated by these numbers.
Group Underlying Operating Profit (post COVID-19 costs) was £35.2m (2019:
£37.0m). Group Underlying Operating Profit is stated after £6.4m of COVID-19
related net costs and before net exceptional costs of £6.4m, contingent
consideration, amortisation and share based payments. Group Underlying
Operating Profit (pre COVID-19 costs) was £41.5m, being 12% up against prior
year. These figures include amounts received through the Coronavirus Job
Retention Scheme (CJRS).
COVID-19 related net costs of £6.4m include costs incurred for unused
property and other assets, such as vehicles, while the national lockdown was
in place during 2020, and other costs including holiday pay accruals and PPE,
net of property grants received during the national lockdown.
Group Underlying Operating Profit includes £15.7m received through the CJRS,
which was used to meet the salaries of employees placed on furlough and secure
long-term jobs, and £2.4m of business rates relief. The Group also received
property grants of £2.6m. Around 90% of the total CJRS amounts, was received
during H1 2020, reflecting the impact of the significant restrictions on
activity in the housing market, the required closure of the Estate Agency
branch networks, the restriction on all physical property valuations, which
resulted in c.3,300 employees being placed on furlough during the first
national lockdown. By the end of July 2020, over 85% of furloughed employees
had returned to work, with the remainder returning steadily over the following
months, reflecting the successful use of the scheme to safeguard jobs, with no
colleagues remaining on furlough.
In light of the support provided by Government schemes, the Board determined
it was inappropriate to pay the final dividend for 2019 or to declare any
dividends for 2020. In addition, planned salary rises in 2020 were cancelled
and severe restrictions placed on management bonuses. No executive director
bonuses were awarded for 2020.
Underlying Operating Profit is summarised below:
2020 2019
£m £m
Group Underlying Operating Profit (post COVID-19 costs) 35.2 37.0
Adjustments for COVID-19 related net costs:
On assets unused during lockdown (premises, vehicles etc.) 3.0 -
Other costs including holiday pay accrual 3.3 -
Group Underlying Operating Profit (pre COVID-19 costs) 41.5 37.0
Group Underlying Operating Profit (post COVID-19 costs) in H1 was down 20% (Q1
+62%, Q2 -37%), reflecting a strong start to the year as political uncertainty
receded, before profitability reduced significantly during the first national
lockdown in which the Government introduced severe restrictions on business
activity. Profitability recovered quickly in June, following easing of these
restrictions.
Trading was strong throughout H2, with the Government reiterating its
intention to allow the housing market to operate as normally as possible,
allowing the Group's Financial Services, Surveying and Estate Agency
operations to operate more normally in line with Government and Group safety
guidance. Group Underlying Operating Profit (post COVID-19 costs) in H2 was
£25.5m, up 2% compared to the prior year.
Financial Services delivered a particularly resilient performance, with
Underlying Operating Profit post and pre COVID-19 costs up in both H1 and H2.
The Financial Services Division represented an increased proportion of Group
profit, continuing the trend of recent years as the Group focuses on growth in
this area.
Surveying Division Underlying Operating Profit (post COVID-costs) was broadly
in line with the prior year, representing a resilient performance. The
Division was materially impacted by business restrictions during the first
national lockdown, then recovered strongly in the second half, benefiting from
strong lender pipelines and increased new business activity.
The Estate Agency Division's performance also recovered in the second half of
the year, having been significantly impacted in the first national lockdown.
Estate Agency Division Underlying Operating Profit (post COVID-19 costs) for
the year was down 16% (-40% in H1 and -6% in H2). The residential sales
exchange pipeline at 31 December 2020 was more than 65% above the same date in
2019.
Notes:
1 UK Finance - New mortgage lending by purpose of loan, UK
(BOE) (excluding product transfers)
2 Bank of England - House Purchase Approvals and Total
Mortgage Approvals
3 HMRC - Residential Property Transactions £40,000 or above
Financial Services Division
Financial Services: Financials Summary H1 H2 FY
2020 2019 Var 2020 2019 Var 2020 2019 Var
P&L (£m)
Total revenue 28.1 34.3 (18)% 32.9 35.5 (7)% 61.0 69.8 (13)%
Underlying Operating Profit(1) 4.9 4.3 14% 8.5 7.3 17% 13.5 11.6 16%
(pre COVID-19 costs)
Underlying Operating margin 17.5% 12.6% 490bps 25.9% 20.6% 530bps 22.1% 16.7% 540bps
(pre COVID-19 costs)
Underlying Operating Profit(1) 4.6 4.3 7% 7.6 7.3 4% 12.3 11.6 6%
(post COVID-19 costs)
Underlying Operating margin 16.5% 12.6% 390bps 23.2% 20.6% 260bps 20.2% 16.7% 350bps
(post COVID-19 costs)
KPIs
LSL Mortgage Completion Lending(2) (£bn) 14.6 14.7 (0)% 18.0 17.1 6% 32.6 31.7 3%
LSL Market Share(3) 9.0% 8.5% 50bps 9.1% 8.6% 50bps 9.1% 8.6% 50bps
Total advisers 2,431 2,277 7% 2,585 2,392 8% 2,585 2,392 8%
Number of AR firms 896 860 4% 930 878 6% 930 878 6%
FCA capital requirement(4) 5.3 4.7 12% 5.2 4.8 10% 5.2 4.8 10%
Excess capital(4) 10.6 10.8 (2)% 13.5 10.8 25% 13.5 10.8 25%
Lapse provision 4.8 5.7 (16)% 4.5 5.3 (15)% 4.5 5.3 (15)%
Notes:
1 Underlying Operating Profit is shown pre and post COVID-19
related net costs
2 LSL mortgage completions lending quoted includes product
transfers
3 Market share excludes Product Transfers
4 2020 FCA capital requirement and excess capital
Headlines
LSL is one of the largest providers of services to mortgage intermediaries and
specialist mortgage and insurance advice to estate agency and new build
customers. The Board estimates that PRIMIS is the UK's largest mortgage
network. During 2020, PRIMIS won multiple awards, including the Moneyfacts
Awards 2020: Mortgage Network of the Year, Mortgage Introducer Awards 2020:
Mortgage Network of the Year, AIG Quality Awards 2020: Best Crisis Response,
Mortgage Strategy Awards 2020: Best Network 300+ ARs, COVER Excellence Awards
2020: Best Intermediary Promotion of Protection/Health.
The importance of Financial Services to the Group continues to increase,
reflecting the Board's strategy to develop a broader and less volatile income
stream in sectors in which it has significant experience. The Financial
Services Division has enhanced its profit and market share consistently over
recent years, demonstrating resilience and capacity to grow across a wide
range of market conditions. Over the five financial years ended 31 December
2020, the CAGR of Underlying Operating Profit in the Financial Services
Division was 26%(1). The Financial Services proportion of LSL's Gross
Divisional profit has increased for over 10 years running to 29% in 2020.
Intermediaries continue to take the dominant share of the mortgage market and
customers continue to benefit from impartial advice, particularly with the
impact of COVID-19 on lending criteria. The share of new residential lending
sold via intermediaries(2) continued to grow in 2020 to 76% of the market
(2019: 74%) demonstrating the continued resilience of LSL's business model.
LSL has established itself as a leading player in the provision of mortgage
brokerage, and in 2020, LSL provided services in relation to £32.6bn of
mortgage completions, increasing LSL's market share by 0.5 percentage points
to 9.1% of the total purchase and remortgage market (2019: 8.6%). LSL is also
a leading player in the provision of general and protection insurance,
generating new protection insurance policies of around £54m of annualised
premium in 2020.
Despite the impact of COVID-19, the Financial Services Division delivered
profit growth in H1 and H2 on both a pre and post COVID-19 cost basis.
Summary of Financial Services businesses
LSL Financial Services businesses operate in three channels, Intermediary
Network, Direct-to-Consumer and New Build Homes.
The Intermediary Network channel comprises PRIMIS, a leading UK Appointed
Representative Network with broad UK coverage, and The Mortgage Alliance
(TMA), a Mortgage Club distributing mortgages and financial services products
to directly authorised mortgage intermediaries. PRIMIS has a network of 2,585
independent advisers in 930 Appointed Representative firms, and TMA has around
600 regular members. The Board believes that PRIMIS is the largest mortgage
network in the UK.
The Direct-to-Consumer channel is made up of employed and self-employed
advisers providing mortgage and protection advice in branch and via telephony
to customers of both LSL and independent estate agency branches, through
Embrace Financial Services and Linear Financial Solutions. First2Protect
provides home insurance products for property owners, landlords and tenants.
There are 308 advisers in the Direct-to- Consumer Channel.
The New Build Homes channel consists of two LSL subsidiaries, Group First and
RSC, specialising in providing mortgages and financial services products to
customers financing the purchase of new build properties. There are 69
directly appointed advisers in Group First and RSC providing these services
via partnerships with new build developers.
Total Financial Services Revenue generated by the Group in 2020 was £70.8m,
being reported in the Financial Services Division (£61.0m) and in the Estate
Agency Division (£9.9m), the latter representing a variable commission
payment from Embrace Financial Services Ltd, a subsidiary within LSL's
Financial Services Division, reflecting its role in introducing customers to
Embrace advisers.
Revenue is well diversified across the three channels. The revenue mix by
channel for 2020 and 2019 was as follows:
Total Group Financial Services Revenue Mix by Channel (%)
2020 2019
Intermediary Network 44% 40%
Direct to Consumer 40% 43%
New Build Home 16% 17%
Total Revenue 100% 100%
The Financial Services Division has significant scale across its breadth of
products, including mortgage products, pure protection products and general
insurance products. LSL's financial revenue is made up of Mortgage Advice
(fees paid by consumer), Mortgage Procuration (fees paid by mortgage lenders),
Protection Insurance and Household Insurance (commission paid by insurance
companies) and Other Income (including broker fees for PRIMIS services).
The Division's revenue mix by product highlights the significance of LSL's
insurance business and its success in arranging protection products both on a
standalone basis as well as when needed at the time of a mortgage being
arranged.
There is a broadly equal split between mortgage related and protection and
insurance related revenue. The split of revenue by type is as follows:
Total Group Financial Services Revenue Mix by Type (%)
Year ended 31 December
2020 2019
Mortgage Fees 42% 47%
Life & General Insurance fees 45% 43%
Other fees 13% 10%
Total Revenue 100% 100%
2020 performance
LSL's total gross mortgage completions (including Product Transfers) increased
by 3% to £32.6bn (2019: £31.7bn). Gross mortgage completions excluding
Product Transfers reduced by 3% to £22.1bn (2019: £22.8bn), in a market
which UK gross mortgage lending (excluding product transfers) fell by 9% and
UK housing transactions fell by 11%. An increasingly important activity is
advising customers switching mortgage schemes with their existing lender
("product transfers"). LSL's product transfers increased by 17% to £10.5bn
(2019: £8.9bn) as Product Transfers dominated remortgage activity during
Lockdown, supporting the generation of recurring income.
The mix of mortgage applications between purchase and refinance (including
both remortgages and product transfers), returned to more typical levels as
the year progressed. Cases were heavily skewed to refinance during lockdown at
around 86% in April, with a more normal 50/50 split for most of H2. The
proportion of mortgage product transfers arranged during 2020 increased to
32%, up from 28% of all LSL lending arranged in 2019.
LSL continued to be successful in attracting new appointed representatives
firms to its PRIMIS network. In the year to 31 December 2020, the number of
appointed representative firms increased by 6% to 930, and the number of
advisers by 8% to 2,585. The number of advisers has subsequently grown further
to 2,681 as at 31 March 2021, and the pipeline of new advisers had also grown
over Q1 2021. Further recruitment of new firms and advisers is expected to
support ongoing profitable growth for PRIMIS.
Despite the impact of COVID-19, the Financial Services Division delivered
profit growth in H1 and H2 on a pre and post COVID-19 cost basis. Underlying
Operating Profit (post COVID-19 costs) increased by 6% to £12.3m (2019:
£11.6m). This improvement was delivered despite the impact of the market
disruption on Financial Services' revenue, which was down 13% to £61.0m
(2019: £69.8m). The improvement in profitability reflected careful cost
management with scale efficiencies in PRIMIS, including reduced IT platform
costs, which will support LSL's profitability as we continue to grow our
financial services businesses.
Following a revenue reduction of 18% during H1, there was a steady improvement
following the end of the first national lockdown, with H2 2020 revenues down
7% on H2 2019. Momentum grew as the second half progressed and performance in
December was particularly strong with year-on-year revenue growth in December
2020 of 10%, as application pipelines converted strongly.
PRIMIS finished the year particularly well, with year-on-year revenue growth
in December of around 21%.
Impact of COVID-19
The impact of COVID-19 varied by channel. The Intermediary channel was
particularly resilient, with revenue down 7% year-on-year, outperforming the
overall market decline of 9%. The independent advisers working in the PRIMIS
network firms focused on service of existing clients, working remotely from
their customers through the lockdown period. The attachment rate of
Penetration of Protection products to new mortgages written fell during the
period, as the lack of face-to-face appointments impacted conversion, and
increased proportion of Product Transfers providing less opportunities for
Protection.
The Direct-to-Consumer channel revenue was down 20% year-on-year, reflecting
the impact of COVID-19 on the residential market, with UK transactions down
11%, and the phased return of advisers from furlough impacted the speed of
resumption of normal productivity levels and from financial advisers largely
not able to physically work in the estate agency branches due to social
distancing requirements. Embrace Financial Services (EFS) advisers supporting
the LSL Estate Agency branches naturally saw opportunities reduce following
the closure of the Estate Agency branches during the lockdown in Q2, resulting
in fewer completions in Q2 and a lower pipeline entering Q3. Year-on-year
comparative volumes were also impacted by the reshaping of the branch network
during Q1 2019.
New Build Home Channel revenue was down 21% year-on-year. The overall New
Build market was more heavily affected than the second-hand market in 2020,
with completions of new build homes in the year to December 2020 down 17%
compared to prior year. New Build was particularly affected by the shutdown of
development sites in H1 and ongoing supply chain challenges during H2,
resulting in builders completing less properties. The phased return of
advisers from furlough impacted the speed of resumption of normal productivity
levels.
Total Group Financial Services Revenue (£m's)
Year Ended 31 December
2020 2019 YoY
Intermediary Network 31.3 33.5 -7%
Direct to Consumer 28.2 35.4 -20%
New Build Home 11.4 14.4 -21%
Total Group FS Revenue 70.8 83.4 -15%
Less: EA variable commission (9.9) (13.6) -27%
Total Financial Services Division 61.0 69.8 -13%
Technology
In 2020, the Division continued to develop Toolbox, its proprietary software
systems, including improvements to the advice journey for both end-customers
and advisers, the delivery of a client portal supporting remote advice
capability, as well as deployment of enhanced security features and electronic
identity verification solutions. Toolbox is to be used as the platform for the
Group's "buy-and-build" joint venture with Pollen Street Capital.
In February 2021 LSL announced the acquisition of a 60% stake in Direct Life
Quote Holdings Limited for £1.8m, and the business and assets of Mortgage Gym
Limited (Mortgage Gym) for £2.4m, as part of its digital strategy to drive
growth in Financial Services.
The deployment of Mortgage Gym will strengthen the technology support
available to LSL and PRIMIS mortgage advisors, increasing the efficiency of
users and helping to pre-qualify leads, whilst increasing the capability to
generate leads from third party sources. The technology is currently being
piloted by LSL in the new build market and under LSL ownership it is planned
to accelerate its deployment, enhancing the service proposition to developers
and giving LSL the opportunity to grow market share in this sector. It is also
expected to bring significant benefits to EFS, increasing the efficiency and
productivity of advisers working with LSL and third-party estate agency
offices, such as those of The Property Franchise Group.
Direct Life Quote Holdings principal subsidiary, Direct Life & Pension
Services, has developed an advanced technology platform that offers digital
protection insurance product recommendations to intermediaries and direct to
retail customers via an end-to-end online service through third party
aggregators. The investment in Direct Life & Pension Services will help
both PRIMIS members and LSL's directly employed advisers to increase their
sale of protection products for the benefit of clients and customers.
Governance
The regulated nature of Financial Services highlights the importance of
effective risk management. Given the importance of Financial Services to the
Group's strategy, the Nominations Committee has taken steps to ensure that the
Board includes directors with significant experience of operating in regulated
financial services businesses. During 2020 the independent member of the
Financial Services Oversight Committee became Chair of that Committee, to
enhance the Division's governance arrangements.
In common with other regulated businesses, LSL's Financial Services activities
require the maintenance of minimum levels of regulatory capital, the
calculation for which is based on revenue in related activities. At the end of
Q4 2020, the most recent regulatory reporting period, the relevant businesses
held total capital of £18.7m, significantly ahead of the regulatory
requirement of £5.2m and indicative of the Group's prudent approach to
balance sheet management. This capital surplus will support significant
further growth in FCA-regulated activities.
Notes:
1 Underlying Operating Profit growth is pre COVID-19 related
net costs
2 UK Finance New residential lending sold direct and via
intermediaries
3 LSL mortgage completions lending quoted includes product
transfers
Surveying Division
Surveying: Financials Summary H1 H2 FY
2020 2019 Var 2020 2019 Var 2020 2019 Var
P&L (£m)
Total revenue 31.1 42.7 (27)% 46.0 43.7 5% 77.1 86.4 (11)%
Underlying Operating Profit(1) 4.9 6.3 (23)% 13.0 10.0 30% 17.9 16.3 9%
(pre COVID-19 costs)
Underlying Operating margin 15.6% 14.8% 80bps 28.3% 22.9% 530bps 23.2% 18.9% 420bps
(pre COVID-19 costs)
Underlying Operating Profit(1) 4.1 6.3 (35)% 12.1 10.0 21% 16.2 16.3 (1)%
(post COVID-19 costs)
Underlying Operating margin 13.1% 14.8% -170bps 26.3% 22.9% 340bps 21.0% 18.9% 210bps
(post COVID-19 costs)
KPIs
Jobs performed (000's) 197 251 (22)% 290 257 13% 487 508 (4)%
Revenue from Private Surveys (£m) 0.5 0.9 (49)% 0.7 0.9 (25)% 1.1 1.8 (37)%
Income per job (£) 158 170 (7)% 159 170 (6)% 159 170 (7)%
Operational Surveyors Employed (FTE(2)) 507 486 4% 513 514 0% 513 514 0%
Balance Sheet (£m)
PI Costs Provision (7.6) (10.9) (30)% (7.0) (8.2) (14)% (7.0) (8.2) (14)%
Notes:
1 Underlying Operating Profit is shown pre and post COVID-19
related net costs
2 Full Time Equivalent (FTE)
Despite the significant operational impact on the Surveying Division caused by
the restrictions imposed due to COVID-19, the financial performance was highly
resilient. Service levels provided to clients remained high and e.surv was
awarded Best Surveyor/Valuer at the 2020 Mortgage Strategy Awards.
Surveying Division revenue decreased by 11% to £77.1m (2019: £86.4m).
Revenue in the first half reduced by 27%, following a positive revenue
performance in January and February. Lockdown restrictions prevented the Group
from undertaking any physical valuations between 23 March and 18 May. During
this time, LSL worked with lenders to rapidly increase the volumes of
valuations performed remotely.
The ability to undertake physical valuations recommenced on 18 May 2020,
following which volumes quickly recovered. Revenue in H2 2020 was up 5% over
the same period in 2019, reflecting both the clearance of pipelines built up
during lockdown as well as high levels of new instructions. The recovery
gained momentum as the second half progressed, with December Surveying revenue
up 25% year-on-year. The year included the completion of a key contractual
negotiation, with the Surveying Division having been awarded an extension to
its contract to supply UK residential survey and valuation works to a major
high street bank in June 2020.
During 2020, just over 70% of the Surveying Division's revenues were derived
from its top five customers. This is broadly consistent with the concentration
of mortgage lending in the UK, where it is estimated that the six largest
lenders collectively account for around 70% of the market. The total number of
jobs performed during the year was 486,520 (2019: 508,061), with 60% taking
place in H2 2020 (H2 2019: 51%).
Income per job in 2020 reduced to £159 (2019: £170), due to the increased
proportion of jobs undertaken remotely. Remote valuations take less surveyor
time to complete than physical valuations, bringing capacity advantages to
mitigate the lower income per job. Remote valuations in 2020 represented 24%
of all jobs performed (2019: 7%). The percentage increased to 22% in H1 but
was 100% during the period of no physical valuations between 23 March and 18
May. Over H2 remote valuations represented 26% of the total. This partly
reflected a market-wide shortage of capacity to clear pipelines and cope with
elevated demand conditions, as well as an increase in the use of Remote
Valuations by some lender clients.
Surveying Division Underlying Operating Profit (post COVID-19 costs) of
£16.2m was broadly in line with prior year (2019: £16.3m). Underlying
Operating Profit was down 35% in H1 and up 21% in H2, with an improved profit
margin (post COVID-19 costs) for 2020 of 21.0% (2019: 18.9%). The margin
benefited from cost restructuring during H2 2019 and during Q1 2020, following
rationalisation of back-office administration, which yielded annualised
savings of £1m.
The development and retention of surveyors remains a high priority, and
success in this area facilitated the delivery of significant valuation volumes
following lockdown. The total number of operational surveyors employed (FTE)
at 31 December 2020 was maintained at 513 (2019: 514). In 2021, the Surveying
Division will continue to focus on its recognised and highly successful
graduate programme, to alleviate the impact of capacity constraints in the
market and backfill. The pass rate for Graduates to AssocRICS status in 2020
was 100%. In addition, the business continues to recognise other industry
bodies to provide capacity, supporting trainees with our established mentoring
programme.
At 31 December 2020, the total provision for professional indemnity (PI) costs
was £7.0m (2019: £8.2m). In 2020, the Group continued to make positive
progress in addressing historic PI claims and there was a net £0.7m
exceptional gain in the year.
Estate Agency Division
Estate Agency: Financials Summary H1 H2 FY
2020 2019 Var 2020 2019 Var 2020 2019 Var
P&L (£m)
Residential Sales Exchange Income 18.6 27.6 (33)% 30.2 30.1 0% 48.8 57.7 (15)%
Lettings Income 27.5 33.8 (19)% 31.1 33.5 (7)% 58.6 67.3 (13)%
Financial Services Income 4.5 6.8 (33)% 5.4 6.8 (21)% 9.9 13.6 (27)%
Franchise income 0.7 1.0 (31)% 0.9 1.3 (25)% 1.6 2.3 (28)%
Conveyancing & Other(1) 2.5 5.5 (55)% 3.5 3.4 4% 5.9 8.8 (33)%
Asset Management 2.0 2.5 (20)% 1.8 2.8 (36)% 3.8 5.3 (29)%
Total revenue 55.8 77.1 (28)% 72.9 77.8 (6)% 128.7 154.9 (17)%
Underlying Operating Profit(2) 4.1 4.0 3% 11.4 10.4 9% 15.5 14.5 8%
(pre COVID-19 costs)
Underlying Operating margin 7.4% 5.2% 220bps 15.6% 13.4% 220bps 12.1% 9.3% 280bps
(pre COVID-19 costs)
Underlying Operating Profit(2) 2.4 4.0 (40)% 9.7 10.4 (7)% 12.1 14.5 (16)%
(post COVID-19 costs)
Underlying Operating margin 4.3% 5.2% -90bps 13.3% 13.4% -20bps 9.4% 9.3% 10bps
(post COVID-19 costs)
KPIs
Exchange units -owned (000's) 5.0 8.5 (41)% 7.9 8.2 (3)% 12.9 16.7 (23)%
Managed Properties - owned (000's) 24.8 25.1 (1)% 24.8 25.0 (1)% 24.8 25.0 (1)%
3,730 3,246 15% 3,809 3,666 4% 3,778 3,452 9%
Average Residential Sales Exchange
Fee per unit (£)
Notes:
1 'Other income' includes conveyancing services, EPCs, Home Reports,
utilities and other products and services to clients of the branch network.
2 Underlying Operating Profit is shown pre and post COVID-19 related
net costs
Following a strong start to the year, the pandemic resulted in the closure of
the branch network, with H2 experiencing a significant increase in housing
market activity. The Estate Agency Division responded with agility to the
operational challenges caused by COVID-19 and we are exceptionally well placed
to benefit from the current strong market, having increased our market share
since the end of the lockdown.
Estate Agency Underlying Operating Profit (post COVID-19 costs) was £12.1m
(2019: £14.5m), with the impact of COVID-19 and the Tenant Fee ban (June
2019) offsetting the benefit of the branch networks rationalisation in the
early part of 2019. After COVID-19 costs are excluded, Underlying Operating
Profit was £15.5m. After COVID-19 costs, H1 profit was down 40% to £2.4m (H1
2019: £4.0m), recovering in H2 to just 7% down to £9.7m (H2 2019: 10.4m) as
the market opened, with residential exchange pipelines at 31 December 2020, up
65% year-on-year.
Total Estate Agency Division revenue for 2020 decreased by 17% to £128.7m
(2019: £154.9m). Adjusting for the closure of the Your Move and Reeds Rains
branches during Q1 2019, like-for-like total revenue decreased by 14% compared
to 2019. Revenues for H1 2020 decreased by 28% in comparison to the prior
year, reflecting the impact of the national lockdown on all revenue streams.
The recovery in revenues post the national lockdown resulted in H2 2020
revenue performance down just 6% year-on-year, reflecting high levels of
Residential Sales exchanges. In Q4 2020, revenues were 1% up year-on-year as
the significant pipeline built during the period following lockdown began to
exchange. This steady growth can be seen in December revenues which were up 7%
year-on-year. This pattern continued into 2021, with the first quarter
showing strong growth over both 2019 and 2020.
Over the period March 2020 to May 2020, the proportion of Estate Agency FTE
employees placed on furlough peaked at 77%. Once restrictions relaxed after
the national lockdown, the Group rapidly reopened its branch networks. The
number of FTE employees on furlough reduced to 35% by the end of June 2020 and
was just 2% by the end of September 2020, with further reductions as the year
progressed.
Although COVID-19 materially impacted the London property market, the market
recovered extremely strongly following the easing of restrictions. Marsh &
Parsons' Residential Sales exchange income was down 11% year-on-year in H1,
before recovering strongly to 4% ahead in H2. Lettings income was impacted
during the year by lower demand and rents, particularly in Prime Central
London. However, this has recovered strongly in recent months. A new Financial
Services offering was launched by Marsh & Parsons at the beginning of
2020, which is expected to contribute positively to profits in 2021.
Residential Sales
Residential Sales exchange income decreased by 15% to £48.8m (2019: £57.7m).
Adjusting for the reduced number of branches following the planned reshaping
of the network in Q1 2019, total like-for-like Residential Sales exchange
income decreased by 12%, broadly in line with the overall market decline on a
national level. Encouragingly, at a local level, in the locations traded by
LSL, market share slightly increased in H2, a pattern which has continued in
2021.
Residential Sales exchange income was down by 33% in H1 2020, with low
exchange volumes in the immediate lead up to and during the first national
lockdown between 23 March and 13 May 2020, throughout which time the branch
network was required to close. LSL's Estate Agency businesses responded
quickly to the easing of restrictions, and by the end of June 2020, all but
five branches had reopened. Residential Sales exchange activity increased
steadily post the national lockdown, with H2 2020 revenues in line with the
prior year. Q4 2020 revenues were up 16% year-on-year, with exchanged units
up 14%.
The significant increase in the number of house sales agreed following the end
of the national lockdown in May 2020 gave rise to significant pressures in
parts of the housing chain, notably a market-wide shortage in conveyancing
capacity. This has meant that the average time taken to exchange and complete
on agreed sales has increased in the market generally.
The Residential Sales exchange pipeline grew materially during this period. At
the end of December 2020, this pipeline was more than 65% above the same point
in 2019. There was no evidence of any material increase in Residential Sales
fall-through trends in the later part of 2020, nor in 2021 to date.
Average residential sales exchange fees per unit increased by 9% to £3,778
(2019: £3,452), reflecting the impact of the reshaped keystone branch network
and the closure of more marginal, sub-scale branches.
Lettings
Total Lettings income decreased by 13% to £57.7m (2019: £67.3m). Adjusting
for the planned reduction in branches and for the Tenant Fee ban introduced in
June 2019, total like-for-like lettings income decreased by 9%, the recurring
nature providing significant resilience to market conditions. As a result,
Lettings income increased to 46% of total Estate Agency income (2019: 43%),
despite the impact of the Tenant Fee ban.
Lettings income was, however, affected by the low volume of buy-to-let
properties coming to market, a suppressed student market during the national
lockdown and an excess of lettings stock in Prime Central London, where fewer
tourists and corporate lets caused more properties to be released onto the
long-term lettings market, creating pressure on rents and added competition
for tenants. The total number of managed properties at 31 December 2020 was
24,804, broadly in line with the same date in 2019.
Financial Services Income
As noted above, the Estate Agency Division receives a variable commission
payment from Embrace Financial Services Ltd, a subsidiary within LSL's
Financial Services Division, reflecting its role in introducing customers to
EFS advisers. This income was down 27% to £9.9m (2019: £13.6m), reflecting
the impact of COVID-19 in reducing branch network generated leads and lower
productivity from financial advisers not able to physically work in the estate
agency branches. The arrangements between the Estate Agency division and
Embrace are being reviewed to align them more closely with market rates based
on an arm's length relationship. This is likely to result in lower payments
from Embrace to Estate Agency, and a move in profits from the Estate Agency
Division to the Financial Services Division. More information in respect of
the impact of this will be provided at the time of publication of LSL's
Interim Results for 2021.
Franchise Income
Franchise income was down 28% to £1.6m in 2020 (2019: £2.3m) largely
reflecting lower royalties received from franchisees relating to residential
exchange sales resulting from the market-wide factors described above.
Conveyancing and other income
Conveyancing and other income fell by 31% to £5.9m (2019: £8.8m), in large
part due to lower Residential Sales transaction volumes and lower productivity
brought about by the need for home working following the return from lockdown.
H1 was down 55%, with a recovery in H2 (up 4%) reflecting the conveyancing
income earned on increasing Residential Sales Income.
Asset Management
Asset Management revenues were down by 29% for the year to £3.8m (2019:
£5.3m), a smaller reduction than the overall reduction in repossessions which
were down by 67%. The number of repossessions was much lower than in previous
years as lenders exercised forbearance to protect customers whose personal and
financial situation was impacted by COVID-19. This was reinforced strongly in
the FCA's COVID-19 guidance, in effect since 19 March 2020, that lenders
should not enforce repossessions before 1 April 2021, except in exceptional
circumstances.
Branch numbers
Breakdown of LSL's Estate Agency branches as at 31 December 2020 and 31
December 2019:
Owned Total 2020 Total 2019
Franchise
Your Move 89 79 168 169
Reeds Rains 56 49 105 105
Sub total 145 128 273 274
LSLi 51 2 53 59
Marsh & Parsons 30 0 30 30
Total 226 130 356 363
The total number of Estate Agency branches reduced by seven in 2020, following
the net reduction of five owned branches, including the closure of six LSLi
owned branches, the opening of one Reeds Rains branch, and the closure of two
franchise branches.
Estate Agency Awards and Achievements 2020
· Reeds Rains: Best Estate Agent Guide 2021(*): Best Estate Agency
Guide Award - Best Large Lettings Agency in the UK, Winner.
· Your Move: USwitch Website Speed League Survey: Overall Best Property
Website.
(*) As judged and announced in 2020.
Financial Review
Income Statement
Group Revenue
Revenue decreased by 14.3% to £266.7m (2019: £311.1m), impacted by COVID-19,
the closure in February 2019 of 164 estate agency branches to reshape the Your
Move and Reeds Rains networks, and the tenant fee ban introduced in June 2019.
H1 Revenue (down 25% year-on-year) was particularly impacted during the first
lockdown by the mandated closure of the Estate Agency branches, and with no
physical valuations permitted to take place, recovering in H2 (down 3%
year-on-year) after the reopening of the property market following the first
lockdown, with strong activity levels supported by the reduced rates of Stamp
Duty Land Tax announced in July 2020.
Total operating expenditure
Total operating expenses decreased by 15.5% to £232.9m (2019: £275.5m). This
reduction reflects Government support, reduced payments whilst staff were on
furlough, the cancellation of all executive director bonuses, severe
restrictions on all other senior management bonuses which were limited to a
maximum of 5%, reduced sales commissions on lower revenues during the year,
the full-year cost benefit of reshaping the Your Move and Reeds Rains branch
networks in 2019 and savings from a back-office restructure in Surveying.
Further savings resulted from the impact of COVID-19 including reduced
marketing expenditure, and office and travel expenses, and other reductions in
non-essential expenditure.
Central (unallocated) costs were slightly lower at £5.3m (2019: £5.4m).
Executive director bonuses were not paid for 2020 (2019: £0.7m).
Other operating income
Other income, relating to rental income, was £0.8m (2019: £0.9m), with the
decrease resulting from the Group not renewing branch and office head leases
reaching the end of their term.
Gain on sale of property, plant, and equipment
A gain on sale of £0.02m (2019: £0.1m) resulted from the disposal of one
commercial property, for consideration of £0.1m.
Income from joint ventures and associates
Income from joint ventures and associates was £0.5m (2019: £0.4m). The share
of profit after tax in joint venture holdings in LMS and TMG of £1.3m (2019:
£1.4m) is included in the Estate Agency Division Underlying Operating Profit,
with the £0.8m share of losses after tax from the associate holding in
Mortgage Gym included in the Financial Services Division Underlying Operating
Profit (2019: £0.9m loss).
Share-based payments
The share-based payment charge of £0.02m (2019: £0.3m) consists of a charge
in the period of £1.2m, offset by the lapse of the 2016 SAYE scheme, the
partial lapse of the 2018 LTIP scheme and adjustments for leavers and options
exercised in the period.
Amortisation of intangible assets
The amortisation charge for 2020 was £5.4m (2019: £5.8m). The decrease was
the result of a number of lettings books purchased by the Estate Agency
Division reaching full amortisation during the year.
Exceptional items
The exceptional gain of £0.7m (2019: £2.5m) relates to a release in the PI
Costs provision, following reassessment of potential liability for future
years. The PI Costs provision at 31 December 2020 fell to £7.0m (2019:
£8.2m).
Exceptional costs of £7.1m (2019: £15.7m) comprise £2.4m of aborted deals
costs, in relation to the potential all-share combination between LSL and
Countrywide plc, which did not result in an offer by LSL, £2.7m of
transformation costs, relating mainly to restructuring the Surveying back
office to reduce ongoing overheads, and a £2.0m write down of the carrying
value of the investment in Mortgage Gym.
Contingent consideration
The credit to the income statement in 2020 of £0.5m (2019: £2.1m), mainly
reflected the impact of COVID-19 on the new homes sales market, and
consequently a reduction in the average earnings used in calculating the
contingent consideration provision for RSC and Group First.
COVID-19
The Group received £15.7m from the CJRS, which it used to pay salaries for
colleagues placed on furlough during the year. The Group also received
property grants of £2.6m and business rates relief of £2.4m.
The Group recognised £6.4m of COVID-19 related costs during the year. These
comprised £2.6m of employee costs relating to holiday accruals built up
during the national lockdown and redundancy costs, as well as £3.0m for
property and other asset costs incurred whilst the national lockdown was in
place, net of property grants received, and £0.8m of other costs including
PPE.
Group Underlying Operating Profit(2) (post COVID-19 costs) was £35.2m (2019:
£37.0m) and Group Underlying Operating Profit (pre COVID-19 costs) was
£41.5m (2019: £37.0m).
Group Operating Profit
On a statutory basis, Group operating profit increased 21.1% to £23.9m (2019:
£19.7m). This increase was largely driven by a reduction in exceptional costs
during the year, offset in part by a reduction in exceptional gains and
contingent consideration related credits.
Net financial costs
Net financial costs amounted to £3.0m (2019: £3.7m) and related principally
to interest and fees on the RCF and the unwinding of the IFRS 16 lease
liability. Interest and fees relating to the RCF of £1.2m (2019: £1.6m) were
reduced by the significantly lower average net debt position of £22.9m during
2020 in comparison to the prior year which was £52.5m. Finance costs of
£1.6m in 2020 (2019: £1.7m) related to the unwinding of the IFRS 16 lease
liability. Finance income of £0.1m (2019: £nil) related to loan note
interest.
Taxation
A change to the main UK corporation tax rate was announced in the UK
Government's Budget on 11 March 2020 and substantively enacted on 17 March
2020. This headline rate applicable from 1 April 2020 remained at 19%,
rather than the previously enacted reduction to 17%. Deferred tax is therefore
provided at 19% (2019: 17%). Corporation tax is recognised at the headline
UK corporation tax rate of 19% (2019: 19%).
The effective rate of tax for the year was 22.0% (2019: 19.0%). The
effective tax rate for 2020 was higher than the headline UK tax rate for
various reasons including: the depreciation of assets which do not qualify for
capital allowances; the impairment of investments in joint ventures and
associates; and the upward revaluation of deferred tax liabilities.
Deferred tax credited directly to other comprehensive income was £0.0m (2019:
£0.1m). Income tax credited directly to the share-based payment reserve was
£0.0m (2019: £0.0m).
In 2020, corporation tax payments of £6.1m (2019: £5.5m) were made, which
was greater than the corporation tax charge for the year of £5.1m (2019:
£4.0m). This was the result of the change in the timings of corporation tax
payments, which require corporation tax liabilities to be settled in the year
in which they accrue. As 2020 is the transitional year for this change, the
Group has been required to make tax payments in respect of the full estimated
current year tax liability, as well as the final instalments in respect of the
prior period.
Basic and Adjusted Basic Earnings Per Share
The Basic Earnings Per Share(3) was 15.9 pence (2019: 12.6 pence). The
Adjusted Basic Earnings Per Share(3) was 31.9 pence (2019: 28.0 pence), an
increase of 13.9%. This is higher than the increase in Group Underlying
Operating Profit, as a result of the lower net financial costs used in
arriving at Adjusted profit after tax.
Balance Sheet
Goodwill
The carrying value of goodwill is £159.9m, which has been assessed using
models of projected earnings, with no change required to the carrying value
(2019: £159.9m). This reflects the continued positive cash generating
potential of the Group's cash generating units.
Other intangible assets and property, plant and equipment
Total capital expenditure in the year amounted to £4.1m (2019: £4.9m). The
reduction was mainly due to cash conservation measures taken during the
lockdown, which focused capital spend on essential projects. LSL continued to
invest in technology and the capital expenditure in the year included £1.8m
(2019: £1.3m) for further development of the Toolbox platform in the
Financial Services divisions and investment by the Estate Agency division in
property software.
Mortgage Gym
LSL has been a strategic investor in Mortgage Gym since July 2018, which has
developed an innovative digital platform that confirms mortgage eligibility
within 60 seconds, matching borrowers with lenders.
During February 2021, Mortgage Gym entered administration. In February 2021,
LSL received payment in full settlement of its £2.2m of loan notes and
accrued loan note interest from Mortgage Gym's administrators. LSL has written
down its investment in Mortgage Gym to £nil as at 31 December 2020, with the
write down recognised in exceptional items. LSL acquired the trade and assets
of Mortgage Gym from the administrators for a consideration of £2.4m.
Mortgage Gym will strengthen the technology support available to LSL and
PRIMIS mortgage advisors, increasing the efficiency of users and help to
pre-qualify leads, whilst enhancing the Group's ability to generate leads from
third party sources. LSL is currently piloting the technology in the new build
market and under the Group's ownership its deployment will be accelerated,
enhancing the service proposition to developers and giving LSL the opportunity
to grow market share in this sector. It will also bring significant benefits
to Embrace Financial Services, increasing the efficiency and productivity of
advisers working with LSL and third-party estate agency offices.
Financial assets
LSL holds financial assets of £9.6m (2019: £9.3m,) comprising convertible
loan notes and investment in equity instruments. The increase in the year was
substantially due to the net impact of the issuance and part conversion of
loan notes to Mortgage Gym.
LSL holds a small number of investments in unlisted companies. The largest
investment is an 8.8% shareholding in Yopa Property Limited, a UK-based online
hybrid estate agent. The carrying value of the Group's investment in Yopa has
been assessed, including a review of its latest financial performance, and the
valuation remains unchanged from 2019 at £6.5m (2019: £6.5m).
Joint ventures
The Group has two joint ventures: a 33.3% (2019: 33.3%) interest in TM Group,
whose principal activity is to provide property searches, and a 50% (2019:
50%) interest in LMS, whose principal activity is to provide conveyancing
panel management services. LMS and TM Group are held on the balance sheet at
£9.1m and £2.3m respectively (2019: £8.8m and £1.5m). Both joint ventures
have resilient business models delivering resilient performances in 2020,
despite the impact of COVID-19.
Financial Liabilities
Bank facilities / Net Bank Debt / Liquidity
At 31 December 2020, Net Bank Debt(3) was at a historic low of £1.6m (2019:
£41.9m). The resilient performance during 2020 demonstrated the underlying
strength of the business and its diversified revenue streams. Stress testing
carried out on entry to lockdown assuming significant market stress throughout
2020, indicated the Group would retain sufficient liquidity throughout the
year. Careful cash management, with regular stress testing avoided the need
for a full RCF draw-down, equity raise, or requirement to request a variation
to bank covenants. Adjusting for COVID-19 related payment deferrals, mainly in
relation to tax payments due as agreed with HMRC, underlying net Bank Debt at
31 December 2020 was about £17m.
Cash preservation measures taken included reductions in Capex and
non-essential expenditure, annual pay award cancelled, no payment of bonuses
to Executive directors and severe restrictions on all senior management annual
bonuses which were capped at 5%, and payment deferrals negotiated.
Shareholders did not receive a final dividend for 2019, nor any dividend
relating to 2020, which together saved £20.5m had dividends been paid in line
with the Board's previously policy. Support from the UK Government was
received in the form of CJRS (£15.7m) and rates grants (£2.6m).
On 24 February 2021, LSL announced a new banking facility, providing the Group
with balance sheet flexibility to take advantage of growth opportunities,
particularly in financial services. A £90 million committed revolving credit
facility, with a maturity date of May 2024, arranged on competitive terms,
replaced the previous £100m facility that was due to mature in May 2022.
In extending the banking facility, the Board took the opportunity to review
the Group's borrowing requirements in light of its strong cash generation, and
the Group's reduced reliance on the housing market, reducing the size of the
committed facility and therefore the costs associated with it. To provide
further flexibility to support growth, the facility includes a £30m
accordion, to be requested by LSL at any time, subject to bank approval.
The new facility is provided by Barclays Bank PLC and Santander UK Plc, who
are two long-standing banking partners, alongside NatWest Bank plc, who we
welcomed to the banking syndicate. LSL already has a strong and long-standing
relationship with NatWest Bank plc, through its Financial Services and
Surveying Divisions.
Shareholders' funds amounted to £157.8m (2019: £141.2m), with balance sheet
gearing of 1.0% (2019: 29.7%). The 2020 gearing level(4) was 0.03 times Group
Adjusted EBITDA(5) (2019: 0.8 times). Adjusting for the impact of IFRS 16
Leases, 2020 gearing was 0.03 times (2019: 1.0 times).
Deferred and contingent consideration
Within financial liabilities, LSL has £0.1m (2019: £0.1m) of deferred
consideration and £5.4m (2019: £5.8m) of contingent consideration. The
contingent consideration relates primarily to the estimated cost of acquiring
the remaining shares in Group First (£1.5m for the remaining 5%) and RSC
(£3.7m for the remaining 40%).
Provisions for liabilities:
Professional indemnity (PI) claim provision
At 31 December 2020, the total provision for historic PI Costs was £7.0m
(2019: £8.2m). In 2020, the Group continued to make progress in addressing
historic claims and there was a net £0.7m exceptional gain. The impact of
COVID-19 has slowed the rate of progress in reducing the overall PI liability
and the number of PI valuation cases outstanding compared to previous years.
Net assets
The Group's net assets as at 31 December 2020 were £157.8m (2019: £141.2m).
Statement of Cash-flows
The Group generated cash from operations of £66.3m (2019: £38.8m) at a
cash-flow conversion(6) rate of 159% (2019: 105%). The increase in conversion
from 2019 was a result of both the increase in trade and other payables of
£13.6m (2019: decrease of £6.2m) and a decrease in trade and other
receivables of £8.6m (2019: increase of £5.5m), as well as £18.3m received
from the Government. The trade and other payables increase, was largely due to
COVID-19 related payment deferrals, mainly in relation to tax payments as
agreed with HMRC. The reduction to trade and other receivables, was the result
of higher collections during December 2020. Provisions decreased by £1.5m
(2019: decrease of £3.9m), due to the positive progress in addressing
historic PI claims.
Treasury and Risk Management
LSL has an active debt management policy. The Group does not hold or issue
derivatives or other financial instruments for trading purposes. Further
details on the Group's financial commitments, as well as the Group's treasury
and risk management policies, are set out in this Report.
International Financial Reporting Standards (IFRS)
The Financial Statements have been prepared in accordance with the
requirements of the Companies Act 2006 and International Financial Reporting
Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in
the EU.
Notes:
(1 )Group Underlying Operating Profit is before
exceptional costs, contingent consideration, amortisation of intangible assets
and share-based payments (as defined in Note 6 to the Financial Statements)
(2 )Refer to Note 6 to the Financial Statements
(3 )Refer to Note 11 to the Financial Statements
for the calculation
(4 )Operational gearing is defined as Net Bank
Debt divided by Group Adjusted EBITDA(5)
(5 )Group Adjusted EBITDA is Group Underlying
Operating Profit plus depreciation on property, plant and equipment (as
defined in Note 5 to the Financial Statements)
(6 )Cash-flow conversion is defined as cash-flow
from operations (pre PI and exceptionals) divided by Group Underlying
Operating Profit
Group Income Statement
for the year ended 31 December 2020
2020 2019
Continuing Operations Note £'000 £'000
Revenue 3, 4 266,742 311,073
Operating expenditure:
Employee and subcontractor costs (162,455) (194,207)
Establishment costs (9,528) (10,367)
Depreciation on property, plant and equipment (13,929) (14,842)
Other operating costs (46,938) (56,098)
(232,850) (275,514)
Other operating income 783 887
Gain on sale of property, plant and equipment 15 148
Income from joint ventures and associates 493 441
Share-based payments (18) (312)
Amortisation of intangible assets (5,395) (5,786)
Exceptional gains 7 674 2,487
Exceptional costs 7 (7,076) (15,730)
Contingent consideration 544 2,054
Group operating profit 23,912 19,748
Finance costs (3,134) (3,744)
Finance Income 144 10
Net financial costs (2,990) (3,734)
Profit before tax 20,922 16,014
Taxation charge 9 (4,596) (3,045)
Profit before tax 16,326 12,969
Earnings per share expressed in pence per share:
Basic 6 15.9 12.6
Diluted 6 15.7 12.6
Group Statement of Comprehensive Income
for the year ended 31(st) December 2020
2020 2019
£'000 £'000
Profit for the period 16,326 12,969
Items not to be reclassified to profit and loss in subsequent periods:
Revaluation of financial assets not recycled through income statement - (3,558)
- (3,558)
Total other comprehensive income / (loss) for the year, net of tax - (3,558)
Total comprehensive income, net of tax 16,326 9,411
Group Balance Sheet
as at 31 December 2020
2020 2019
Note £'000 £'000
Non-current assets
Goodwill 159,863 159,863
Other intangible assets 27,894 30,906
Property, plant and equipment 42,741 49,570
Financial assets 9,561 9,326
Investments in joint ventures and associates 11,406 12,958
Contract 433 686
assets
Total non-current assets 251,898 263,309
Current assets
Trade and other receivables 28,438 34,391
Contract assets 253 253
Current tax asset 184 -
Cash and cash equivalents 11,443 -
Total current assets 40,318 34,644
Total assets 292,216 297,953
Current liabilities
Financial liabilities (12,466) (11,113)
Trade and other payables 10 (72,936) (60,007)
Current tax liabilities - (1,209)
Provisions for liabilities (2,998) (3,575)
Total current liabilities (88,400) (75,904)
Non-current liabilities
Financial liabilities (40,060) (73,951)
Deferred tax liability (1,822) (1,805)
Provisions for liabilities (4,180) (5,077)
Total non-current liabilities (46,062) (80,833)
Total Liabilities (134,462) (156,737)
Net assets 157,754 141,216
Equity
Share capital 210 208
Share premium account 5,629 5,629
Share-based payment reserve 3,942 4,429
Shares held by EBT (5,012) (5,224)
Fair value reserve (13,584) (13,584)
Retained earnings 166,569 149,758
Total equity 157,754 141,216
Group Cash Flow Statement
for the year ended 31 December 2020
2020 2019
Note £'000 £'000
Profit before tax 20,922 16,014
Adjustments for:
Exceptional operating items and contingent consideration 5,857 11,189
Depreciation of tangible assets 13,929 14,842
Amortisation of intangible assets 5,395 5,786
Share-based payments 18 312
Profit on disposal of fixed assets (15) (148)
Profit from joint ventures (493) (441)
Finance income (144) (10)
Finance costs 3,134 3,744
Operating cash flows before movements in working capital 48,603 51,288
Movements in working capital
Decrease in trade and other receivables 8,553 5,462
Increase / (decrease) in trade and other payables 13,606 (6,181)
Decrease in provisions (1,474) (3,908)
20,685 (4,627)
Cash generated from operations 69,288 46,661
Interest paid (2,581) (3,289)
Income taxes paid (6,093) (5,355)
Exceptional costs paid (7,311) (8,799)
Net cash generated from operating activities 53,303 29,218
Cash-flows used in investing activities
Acquisitions of subsidiaries and other businesses (293) (2,711)
Payment of contingent consideration (169) (7,890)
Investment in financial assets (418) (2,783)
Cash received on sale of financial assets - 1,765
Purchase of property, plant and equipment and intangible assets (4,050) (4,892)
Proceeds from sale of property, plant and equipment 138 367
Net cash (expended) on investing activities (4,792) (16,144)
(Repayment) / drawdown of loans (28,883) 7,383
Payment of deferred consideration (80) (2,009)
Payments of lease liabilities (8,304) (9,761)
Receipt of lease Income 23 76
Proceeds from the exercise of share options 176 26
Dividends paid - (11,194)
Net cash expended in financing activities (37,068) (15,479)
Net increase / (decrease) in cash and cash equivalents 11,443 (2,405)
Cash and cash equivalents at the end of the year 11,443 -
Group Statement of changes in equity
for the year ended 31 December 2020
Share- based payment reserve
Share premium account
Share Shares held by EBT Fair value reserve Retained earnings Total
capital equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2020 208 5,629 4,429 (5,224) (13,584) 149,758 141,216
Profit for the year - - - - - 16,326 16,326
Total comprehensive income for the year - - - - - 16,326 16,326
Issued share capital in the year 2 - - - - - 2
Exercise of options - - (80) 212 - 44 176
Share-based payments - - (423) - - 441 18
Tax on share based payments - - 16 - - - 16
At 31 December 2020 210 5,629 3,942 (5,012) (13,584) 166,569 157,754
During the year ended 31 December 2020, the Trust acquired 167,083 LSL Shares.
During the period, 60,565 share options were exercised relating to LSL's
various share option schemes resulting in the Shares being sold by the Trust.
LSL received £176,000 on exercise of these options.
Group Statement of changes in equity
for the year ended 31 December 2019
Share- based payment reserve
Share premium account
Share Shares held by EBT Fair value reserve Retained earnings Total
capital equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2019 208 5,629 4,129 (5,261) (11,727) 149,615 142,593
Adjustment on initial application of IFRS 16 - - - - - 68 68
Revised opening balance 208 5,629 4,129 (5,261) (11,727) 149,683 142,661
Other comprehensive income for the year
Revaluation of financial assets - - - - (3,558) - (3,558)
Disposal of financial assets - - - - 1,701 (1,701) -
Profit for the year - - - - - 12,969 12,969
Total comprehensive (loss) / income for the year - - - - (1,857) 11,268 9,411
Exercise of options - - (12) 37 - 1 26
Share-based payments - - 312 - - - 312
Dividend payment - - - - - (11,194) (11,194)
At 31 December 2019 208 5,629 4,429 (5,224) (13,584) 149,758 141,216
During the year ended 31 December 2019, the Trust acquired nil LSL Shares.
During the period, 10,672 share options were exercised relating to LSL's
various share option schemes resulting in the Shares being sold by the Trust.
LSL received £26,000 on exercise of these options.
Notes to the Preliminary Results Announcement
The financial information in this Preliminary Results Announcement does not
constitute LSL's statutory financial statements for the year ended 31 December
2020 but has been extracted from the Financial Statements included in Annual
Report and Accounts 2020 and as such, does not contain all information
required to be disclosed in the financial statements prepared in accordance
with IFRS.
Statutory financial statements for this year will be filed following the 2021
AGM and will be available on LSL's website: lslps.co.uk. The auditors have
reported on these Financial Statements. Their report was unqualified and did
not contain a statement under section 498 (2), (3) or (4) of the Companies Act
2006.
1. Directors' responsibility statement
Each of the current Directors confirms that, to the best of their knowledge,
the Financial Statements, prepared in accordance with IFRS as adopted by EU
standards, give a fair, balanced and understandable view of the assets,
liabilities, financial position and profit or loss of the issuer and the
undertakings included in the consolidation taken as a whole; and the
Directors' Report includes a fair review of the development and performance of
the business and the position of the issuer and the undertakings included in
the consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
2. Basis of preparation
The Group Financial Statements have been prepared on a going concern basis and
on a historical cost basis, except for certain debt and equity financial
assets that have been measured at fair value. The accounting policies applied
by the Group in these consolidated preliminary results are the same as those
applied by the Group in the LSL annual Financial Statements for the year ended
31(st) December 2019. The Group's Financial Statements are presented in pound
sterling and all values are rounded to the nearest thousand pounds (£'000)
except when otherwise indicated.
Going Concern
The Directors have considered the Group's current and future prospects, risks
and uncertainties set out in the risk management objectives and policies, and
its availability of financing, and are satisfied that the Group can continue
to pay its liabilities as they fall due for the period to 30 April 2022. For
this reason, the Directors continue to adopt the going concern basis of
preparation for these financial statements. Further detailed information is
provided in the going concern statement in the Directors' Report in the Annual
Report and Accounts 2020.
3. Revenue
The Group's operations and main revenue streams are those described in the
latest Annual Financial Statements.
Disaggregation of Revenue
Set out below is the disaggregation of the Group's revenue from contracts with
customers:
Year ended 31 December 2020
Financial Services £'000 Surveying and Valuation Services
£'000 Residential Sales exchange Asset Management £'000 Other Total
£'000 Lettings £'000 £'000
£'000
Timing of revenue recognition
Services transferred at a point in time 70,845 77,125 48,821 29,211 2,602 7,592 236,196
Services transferred over time - - - 29,390 1,156 - 30,546
Total revenue from contracts with customers 70,845 77,125 48,821 58,601 3,758 7,592 266,742
Year ended 31 December 2019
Financial Services Surveying and Valuation Services
£'000 £'000 Residential Sales exchange Asset Management Other Total
£'000 Lettings £'000 £'000 £'000
£'000
Timing of revenue recognition
Services transferred at a point in time 83,353 86,358 57,676 37,782 4,311 11,098 280,578
Services transferred over time - - - 29,535 960 - 30,495
Total revenue from contracts with customers 83,353 86,358 57,676 67,317 5,271 11,098 311,073
2020 2019
£'000 £'000
Revenue from services 266,742 311,073
Operating revenue 266,742 311,073
Rental income 783 887
Other operating income 783 887
Total revenue 267,525 311,960
4. Segment analysis of revenue and operating profit
LSL reports three segments: Financial Services; Surveying and Valuation
Services; and Estate Agency:
· The Financial Services segment arranges mortgages for a number of
lenders and arranges pure protection and general insurance policies for a
panel of insurance companies. Embrace Financial Services and First2Protect,
subsidiaries within the Financial Services Division, make a commercially
agreed introducers fee to the Estate Agency Division;
· The Surveying and Valuation Services segment provides a valuations
and professional surveying service of residential properties to various
lenders and individual customers.
· The Estate Agency segment provides services related to the sale and
letting of residential properties. It operates a network of high street
branches. As part of this process, the Estate Agency Division also provides
marketing and arranges conveyancing services. In addition, it provides
repossession and asset management services to a range of lenders. Embrace
Financial Services and First2Protect, subsidiaries within the Financial
Services Division, make a commercially agreed introducers fee to the Estate
Agency Division.
Operating segments
The Management Team monitors the operating results of its business units
separately for the purpose of making decisions about resource allocation and
performance assessment. Segment performance is evaluated based on operating
profit or loss which in certain respects, as explained in the table below, is
measured differently from operating profit or loss in the Group Financial
Statements. Head Office costs, Group financing (including finance costs and
finance income) and income taxes are managed on a Group basis and are not
allocated to operating segments.
Reportable segments
The following tables presents revenue and profit information regarding the
Group's operating segments for the financial year ended 31 December 2020 and
the financial year ended 31 December 2019.
Year ended 31 December 2020
Financial Services Surveying Estate Agency Unallocated Total
and Valuation Services
Income Statement information £'000 £'000 £'000 £'000 £'000
Revenue from external customers 70,845 77,125 118,772 - 266,742
Introducer's fee (9,889) - 9,889 - -
Total revenue 60,956 77,125 128,661 - 266,742
Segmental result:
- Group Underlying Operating Profit pre COVID-19 costs 13,451 17,871 15,554 (5,335) 41,541
- Group Underlying Operating Profit post COVID-19 costs 12,287 16,193 12,071 (5,368) 35,183
- Operating Profit 10,679 14,680 3,802 (5,249) 23,912
Finance Income 144
Finance costs (3,134)
Profit before tax 20,922
Taxation (4,596)
Profit for the year 16,326
Balance sheet information
Segment assets - intangible 17,109 11,280 159,367 - 187,756
Segment assets - other 7,935 13,571 68,993 13,961 104,460
Total segment assets 25,044 24,851 228,360 13,961 292,216
Total segment liabilities (26,010) (27,398) (63,640) (17,414) (134,462)
Net assets / (liabilities) (966) (2,547) 164,720 (3,453) 157,754
Group Underlying Operating Profit is as defined in note 6 to these condensed
financial statements
The joint venture interests of the Group are recorded in the Estate Agency
segment, with the associate interest recorded in the Financial Services.
Unallocated net liabilities comprise plant and equipment £13,000, other
assets £2,505,000, cash £11,443,000, accruals and other payables
£(2,592,000), current and deferred tax liabilities £(1,822,000) and
revolving credit facility overdraft £(13,000,000). Unallocated result
comprises costs relating to the parent company.
Year ended 31 December 2019
Financial Services Surveying Estate Agency Unallocated Total
and Valuation Services
Income Statement information £'000 £'000 £'000 £'000 £'000
Revenue from external customers 83,353 86,358 141,362 - 311,073
Introducer's fee (13,552) - 13,552 - -
Total revenue 69,801 86,358 154,914 - 311,073
Segmental result:
Group Underlying Operating Profit 11,642 16,343 14,453 (5,403) 37,035
Operating profit / (loss) 10,022 17,450 (2,206) (5,518) 19,748
Finance Income 10
Finance costs (3,744)
Profit before tax 16,014
Taxation (3,045)
Profit for the year 12,969
Balance sheet information
Segment assets - intangible 18,088 11,739 160,942 - 190,769
Segment assets - other 9,078 14,822 81,934 1,350 107,184
Total Segment assets 27,166 26,561 242,876 1,350 297,953
Total Segment liabilities (25,895) (25,020) (58,771) (47,051) (156,737)
Net assets / (liabilities) 1,271 1,541 184,105 (45,701) 141,216
Group Underlying Operating Profit is as defined in note 6 to these condensed
financial statements
The joint venture interests of the Group are recorded in the Estate Agency and
Related Services segment, with the associate interest recorded in the
Financial Services.
Unallocated net liabilities comprise plant and equipment £50,000, other
assets £1,300,000, lease liabilities £(34,000), 12% loan notes £(66,000),
Bank overdraft £(883,000), accruals £(1,916,000), deferred and current tax
liabilities £(3,152,000), and revolving credit facility overdraft
£(41,000,000).
5. Adjusted performance measures
In addition to the various performance measures defined under IFRS, the Group
reports a number of alternative performance measures that are designed to
assist with the understanding of the underlying performance of the Group.
The Group seeks to present a measure of underlying performance which is not
impacted by the inconsistency in profile of exceptional gains and exceptional
costs, contingent consideration, amortisation of intangible assets and
share-based payments. Share-based payments are excluded from the underlying
performance due to the fluctuations that can impact the charge, such as lapses
and the level of annual grants.
Costs relating to COVID-19 have been separately identified and excluded from
Group Underlying Operating Profit as the Directors consider that these
adjusted measures shown above give a better and more consistent indication of
the Group's underlying performance. The most significant areas of these costs
are employee related, which includes a £1.3m holiday accrual arising as a
result of furloughed staff and the update to Government regulation on carrying
over annual leave. Redundancy costs of £0.8m were incurred as a result of the
enforced Government lockdown. Property and other asset costs (depreciation)
were incurred during the period of enforced closure of branches following the
Government lockdown, with any property grants received in the same period
reported in this line to sure even-handedness in reporting. Similarly,
establishment costs include rent, rates and other office costs incurred during
the enforced Government lockdown. Other costs relate primarily to protective
equipment to ensure the safety and welfare of employees and customers and IT
set up costs to enable homeworking. Group Underlying Operating Profit includes
£15.7m of amounts receivable relating to the Coronavirus Job Retention
Scheme.
The four adjusted measures reported by the Group are:
· Group Underlying Operating Profit
· Adjusted Basic EPS
· Adjusted diluted EPS
· Group Adjusted EBITDA
The amortisation of intangible assets is not representative of the underlying
costs of the business and is therefore excluded from adjusted earnings.
The Directors consider that these adjusted measures shown above give a better
and more consistent indication of the Group's underlying performance. These
measures form part of Management's internal financial review and are contained
within the monthly management information reports reviewed by the Board.
The calculations of adjusted basic and adjusted diluted EPS are given in Note
6 to these Condensed Consolidated Group Financial Statements and a
reconciliation of Group Underlying Operating Profit is shown below:
2020 2019
£'000 £'000
Group operating profit 23,912 19,748
Share-based payments 18 312
Amortisation of intangible assets 5,395 5,786
Exceptional gains (674) (2,487)
Exceptional costs 7,076 15,730
Contingent consideration credit / (charge) (544) (2,054)
Group Underlying Operating Profit post COVID-19 costs 35,183 37,035
COVID-19 related costs:
COVID-19 related employee costs 2,564 -
COVID-19 related establishment costs 1,417 -
COVID-19 related depreciation costs 1,625 -
COVID-19 related other costs 752 -
Total COVID-19 related costs 6,358 -
Group Underlying Operating Profit pre COVID-19 costs 41,541 37,035
2020 2019
£'000 £'000
Group Underlying Operating Profit post COVID-19 costs 35,183 37,035
Depreciation on property, plant, and equipment 13,929 14,842
Group Adjusted EBITDA 49,112 51,877
COVID-19 related employee costs 2,564 -
COVID-19 related establishment costs 1,417 -
COVID-19 related other costs 752 -
4,733 -
Group Adjusted EBITDA pre COVID-19 costs 53,845 51,877
6. Earnings per share (EPS)
Basic EPS amounts are calculated by dividing net profit for the period
attributable to ordinary equity holders of the parent by the weighted average
number of Ordinary Shares outstanding during the period.
Diluted EPS amounts are calculated by dividing the net profit attributable to
ordinary equity holders of the parent by the weighted average number of
ordinary shares outstanding during the period plus the weighted average number
of ordinary shares that would be issued on the conversion of all the dilutive
potential ordinary shares into ordinary shares.
Profit after tax Weighted average number of Shares 2020 Profit after tax Weighted average number of Shares 2019
£'000 Per Share amount £'000 Per Share amount
Pence Pence
Basic EPS 16,326 102,939,680 15.9 12,969 102,669,719 12.6
Effect of dilutive share options 947,704 425,152
Diluted EPS 16,326 103,887,384 15.7 12,969 103,094,871 12.6
Adjusted basic and diluted EPS
The Directors consider that the adjusted earnings shown below give a better
and more consistent indication of the Group's underlying performance:
2020 2019
£'000 £'000
Group Underlying Operating Profit pre COVID-19 costs 41,541 37,035
Net finance costs (excluding exceptional and contingent consideration items (1,062) (1,600)
and discounting on lease liabilities)
Normalised taxation (tax rate 19% 2019:19%) (7,691) (6,733)
Adjusted profit after tax 32,788 28,702
Adjusted basic and diluted EPS
Adjusted profit after tax Weighted average number of Shares 2020 Adjusted profit after tax Weighted average number of Shares 2019
£'000 Per Share amount £'000 Per Share amount
Pence
Pence
Adjusted basic EPS 32,788 102,939,680 31.9 28,702 102,669,719 28.0
Effect of dilutive share options 947,704 425,152
Adjusted diluted EPS 32,788 103,887,384 31.6 28,702 103,094,871 27.8
This represents adjusted profit after tax attributable to equity holders of
the parent. Tax has been adjusted to exclude the prior year tax adjustments,
and the tax impact of exceptional items, amortisation, share-based payments
and costs related to COVID-19. The effective tax rate used is 19.00% (31
December 2019: 19.00%)
7. Exceptional items
2020 2019
£'000 £'000
Exceptional costs:
Aborted merger deal costs 2,350 569
Branch/centre closure and restructuring costs including redundancy costs 2,312 14,645
Impairment of investment in associate 1,992 -
Other 422 -
Transition costs relating to surveying contracts - 516
7,076 15,730
Exceptional gains:
Exceptional gain in relation to historic PI Costs (674) (2,487)
(674) (2,487)
Exceptional costs
There were £7.08m of exceptional costs in the year (2019: £15.73m), of which
£2.35m of non-recurring and material costs (2019: £0.57m) relating to
aborted merger deal costs in relation to the discussions for a potential all
share combination between LSL and Countrywide plc, which did not result in an
offer by LSL.
There were £2.31m (December 2019: £14.65m) of non-recurring and material
exceptional costs relating to the planned Estate Agency branch/ centre
closures and restructuring costs and the Surveying transformation costs. No
further costs are expected in relation to this.
In February 2021 LSL's associate, Mortgage Gym Limited, entered
administration. The Group has recognised an impairment of £1.99m in the share
of associate net assets as a non-recurring exceptional cost.
In 2020 there were £0.42m of non-recurring exceptional costs in relation to
head office restructuring. No further head office restructuring costs are
expected in 2021.
Exceptional Gains
The Group continued to make positive progress in settling historic PI claims
and there has been a release of £0.67m (2019: £2.49m) for the provision for
professional indemnity (PI) claims.
8. Dividends paid and proposed
No final dividend in respect of the year ended 31 December 2020 (Year ended
December 2019: nil) is declared.
9. Taxation
The major components of income tax charge in the interim Group income
statements are:
2020 2019
£'000 £'000
UK corporation tax:
- current year credit / (charge) 5,111 3,993
- adjustment in respect of prior years (409) (56)
4,702 3,937
Deferred tax:
Origination and reversal of temporary differences (597) (657)
Changes in tax rates 243 69
Adjustment in respect of prior year 248 (304)
(106) (892)
Total tax credit / (charge) in the income statement 4,596 3,045
Corporation tax is recognised at the headline UK corporation tax rate of 19%
(2019: 19%). Accordingly, this rate is applicable in the measurements of the
deferred tax assets and liabilities at 31 December 2020. Deferred tax has been
provided at 19% being the rate at which temporary differences are expected to
reverse.
In March 2021, the 2021 Budget included an announcement to increase the
standard rate of corporation tax rate from 19% to 25% from 1 April 2023. It is
expected this will be substantively enacted during Summer 2021. Since the rate
increase was not substantively enacted at the balance sheet date, deferred tax
has been provided at 19%. The maximum impact on deferred tax balances of the
rate increase is estimated to be £575,000.
The effective rate of tax for the year was 22.0% (2019: 19.0%). The
effective tax rate for 2020 is higher than the headline UK tax rate for a
number of reasons including the depreciation of assets which do not qualify
for capital allowances, the impairment of investments in JVs and associates,
and the upward revaluation of deferred tax liabilities.
Deferred tax credited directly to other comprehensive income is £nil (2019:
£0.1m). Income tax credited directly to the share-based payment reserve is
£nil (2019: £nil).
10. Trade and other payables
2020 2019
£'000 £'000
Current
Trade payables 11,733 11,585
Other taxes and social security payable 24,971 10,896
Other payables 2,291 2,019
Accruals 29,412 30,224
Lapse provision 4,529 5,283
72,936 60,007
Included within other taxes and social security payable is £9.4m of VAT,
which has been deferred and will be payable in instalments between April 2021
and February 2022 as allowed by HMRC under the VAT deferral new payment
scheme in response to the COVID-19 pandemic. Also included in other taxes and
social security payable is £4.3m of PAYE/NIC and Insurance Premium Tax. A
Time to Pay arrangement was reached with HMRC, the full balance was settled on
1 February 2021.
Lapse Provision
Certain subsidiaries sell life assurance products which are cancellable
without a notice period, and if cancelled within a set period require that a
portion of the commission earned must be repaid. The lapse provision is
recognised as a reduction in revenue which is based on historic lapses which
have occurred. The provision is the Management team's best estimate of future
clawed back commission on life assurance policies, taking into account
historic lapse rates in each subsidiary.
11. Analysis of Net Bank Debt
2020 2019
£'000 £'000
Interest bearing loans and borrowings (including loan notes, overdraft, IFRS16
lease liabilities, contingent and deferred consideration
- Current 12,466 11,113
- Non-current 40,060 73,951
52,526 85,064
Unsecured loan notes - (65)
Less: cash and short-term deposits (11,443) -
IFRS 16 Lessee financial liabilities (33,957) (37,232)
Less: deferred and contingent consideration (5,569) (5,884)
Net Bank Debt at the end of the period 1,557 41,883
12. Events after the reporting period
Acquisition of Direct Life & Pensions Services Limited
In January 2021, LSL acquired the 60% of the issued share capital of Direct
Life Quote Holdings Limited, which owns 100% of the share capital of Direct
Life and Pension Services Limited (DLPS). DLPS is a financial services
business specialising in the provision of outsourced financial services
products providing a range of systems and services to financial intermediaries
and direct to consumer companies. The consideration for the acquisition is
£2.4m and is made up of a payment of £1.8m which was paid on completion and
£0.6m deferred consideration.
The Group are currently in the process of allocating the purchase price in
accordance with IFRS 3 and as a result the initial accounting for this
acquisition is incomplete.
Acquisition of Mortgage Gym
In February 2021, LSL acquired the trade and assets of Mortgage Gym Limited
from administration for a consideration of £2.4m. The events and conditions
that led to Mortgage Gym entering administration existed at 31 December 2020.
This is considered an adjusting event for LSL's investment in associate equity
holding, causing an impairment of £2.0m to be recognised through exceptional
costs in 2020 writing the groups carrying value of Mortgage Gym to £nil (see
note 7). The fair value of the secured preference loan notes at 31 December
2020 has been assessed as £2.2m. No fair value adjustment has been required.
New Revolving Credit Facility agreement
In February 2021 LSL announced that it had entered into a new banking facility
which runs to May 2024 with a new limit of £90m; this replaces the existing
RCF, with maturity date of May 2022 and credit limit of £100m.
Formation of joint venture with Pollen Street Capital
On 23 April 2021 LSL announced the formation of the Pivotal Growth joint
venture with Pollen Street Capital (PSC), a vehicle seeking to become a
leading national mortgage broker. It is planned that at least £200m will
be made available by way of equity and debt to fund acquisitions. LSL has
committed up to £33.5m and PSC up to £62.4m to support the acquisitions
to be made by Pivotal Growth. The investment by LSL and PSC will be
supplemented with external debt finance in Pivotal Growth to fund purchases,
with a view to an exit event over a three-to-six year period.
LSL and PSC will each invest up to £19.1m for a 47.8% equity share of Pivotal
Growth. In addition, LSL will invest up to £14.4m and PSC up to £43.3m by
way of loan notes. The commitments will be drawn down by Pivotal Growth over
time dependent on the timing of acquisitions and the extent of external debt
finance deployed. The LSL investment of up to £33.5m will be funded from
LSL's existing cash resource and banking facilities.
LSL will apply equity accounting for its share of Pivotal Growth profits after
tax and will also recognise loan note interest receivable, both to be included
in the Underlying Operating Profit of the Financial Services Division. The
value of the equity investment will be recognised in the LSL balance sheet as
an investment in joint venture and the loan notes recognised in financial
assets within non-current assets. In addition, the acquired companies
membership of the PRIMIS network will generate further profit to the Group.
The profile of profit attributable to LSL from Pivotal Growth will depend on
the timing of acquisitions and before the execution of the first acquisition
there will be a period of modest investment in Pivotal Growth's operating cost
base. Thereafter, the profit contribution to LSL is expected to be material
within 2-3 years, with the opportunity for a meaningful exit event within a
3-6 year period.
The current structure of the agreement provides that the amount due to LSL for
its share of proceeds at exit is capped. This cap can be removed unilaterally
by LSL with shareholder consent, and LSL intends in due course to seek
shareholder approval to remove the cap.
As this is a newly established entity, Pivotal Growth has no gross assets or
profits.
Simon Embley, who was LSL's Non-Executive Chair prior to 28 April 2021, has
been appointed Chief Executive of Pivotal Growth and has stepped down from
this role of LSL Chair following the publication of the Group's 2020 results
on 28 April 2021. The LSL Board has agreed to him investing up to £4m
alongside PSC and LSL for a 4.4% share in the business. Simon will stay on
the LSL Board as a Non-Executive Director, allowing the Group to continue to
benefit from his knowledge and experience. This position will be kept under
review.
Five-year agreement to provide digital and face-to-face mortgage and
protection advice to The Property Franchise Group
In April 2021, LSL announced that it had reached a long-term agreement with
the UK's largest property franchisor, The Property Franchise Group plc
("TPFG"), to offer mortgage and protection advice services to all TPFG's
franchisees, including those recently incorporated as a result of its
combination with Hunters Property Ltd. The Property Franchise Group now has
over 430 physical office locations, conducts the sale of circa 23,000
properties per annum and manages in excess of 73,000 tenanted properties.
The agreement is for a minimum of a five-year period and means that LSL will
be providing digital and face-to-face mortgage and protection advice to the
customers of TPFG and TPFG's franchisees. TPFG franchisees will be provided
with a range of options via LSL's award winning PRIMIS Mortgage Network.
Franchisees will be offered the opportunity either to take on their own
mortgage adviser and become an Appointed Representative of PRIMIS, or to refer
their customers to existing PRIMIS Appointed Representatives, including LSL's
in-house mortgage brokers.
This agreement underlines the opportunity for further growth of its Financial
Services businesses, leveraging LSL's existing leading positions in the
mortgage advice market. This contract will enhance the Financial Services
Division profit after an initial 12-18 month investment period requiring
one-off transition and integration costs.
Forward Looking Statement
This announcement may contain certain statements that are forward‐looking
statements. They appear in a number of places throughout this announcement and
include statements regarding LSL's intentions, beliefs or current expectations
and those of its officers, directors and employees concerning, amongst other
things, LSL's results of operations, financial condition, liquidity,
prospects, growth, strategies and the business it operates. By their nature,
these statements involve uncertainty since future events and circumstances can
cause results and developments to differ materially from those anticipated.
The forward‐looking statements reflect knowledge and information available
at the date of preparation of this update and, unless otherwise required by
applicable law, LSL undertakes no obligation to update or revise these forward
looking statements. Nothing in this update should be construed as a profit
forecast. LSL and its Directors accept no liability to third parties in
respect of this update save as would arise under English law. Any
forward‐looking statements in this announcement speak only at the date of
this announcement and LSL undertakes no obligation to update publicly or
review any forward‐looking statement to reflect new information or events,
circumstances or developments after the date of this update.
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