REG - LSL Property Svcs. - Full Year Results
16/03/2022 07:00
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RNS Number : 8939E LSL Property Services PLC 16 March 2022
For immediate release
16
March 2022
LSL Property Services plc ("LSL" or "The Group")
FULL YEAR RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021
RECORD UNDERLYING OPERATING PROFIT WITH SIGNIFICANT INVESTMENT TO SUPPORT
FINANCIAL SERVICES LED GROWTH STRATEGY
KEY HIGHLIGHTS
Record Group financial performance and historically strong balance sheet
enabling further investment to deliver the Group's ambitious growth strategy
· Group Underlying Operating Profit(1) increased by 40% to £49.3m
(2020: £35.2m)
· Record Underlying Operating Profit stated after expensing c.£3m in
2021 to develop Financial Services technology and Direct to Consumer ("D2C")
business
· Profit before tax up 234% to £69.9m (2020: £20.9m)
· Net Cash of £48.5m at 31 December 2021 (2020: Net Debt: £1.6m)
Strong profit growth in each of the Group's core businesses
· Financial Services Division: Underlying Operating Profit of the core
Financial Services Network business increased by 34% to £14.4m (2020(2):
£10.7m)
· Financial adviser numbers increased by a record 273 year-on-year to
total 2,858 at 31 December 2021
· Gross revenue per advisor(3) increased by 7%
· LSL's share of the total UK purchase and remortgage market increased
to almost 10%
· Surveying & Valuation Division Underlying Operating Profit up 46%
to £23.6m (2020: £16.2m), with Operating margin improving significantly to
c.25% (2020(2): 21%), benefiting from operational efficiency and improved
income per job
· Estate Agency Division Underlying Operating Profit increased by 53%
to £18.4m (2020: £12.1m), reflecting increasing residential market share
across its core catchment areas and overall growth in the value of housing
transactions
Substantial progress in executing our Financial Services led growth strategy
· Announced five-year agreement to provide mortgage and protection
advice services to franchisees of The Property Franchise Group
· Established £200m Pivotal Growth joint venture to "buy and build" a
leading national mortgage broker, with two acquisitions made to date
· Completed acquisitions to strengthen digital capabilities in
Financial Services
· Restructured D2C Financial Services business, to take advantage of
increased opportunities in Estate Agency and New Build sectors
· Sold investments in two non-core businesses for a combined £41.3m,
simplifying the Group and providing funds to make further investment to
deliver the Group's ambitious Financial Services led growth strategy
We expect 2022 financial performance to benefit from continued growth in
Financial Services in a more challenging housing market, demonstrating reduced
cyclicality of earnings
· Latest market estimates suggest the mortgage market will be around
11% lower than 2021, and housing transactions in 2022 around 19% lower than
2021
· Mortgage and housing market activity levels are expected to be at
similar levels as 2019
· The Group's strategic focus on FS and the significant progress made
in Surveying & Valuation, has reduced LSL's exposure to housing market
volatility with the result that we expect a more limited impact on the Group's
results in 2022 than would historically have been the case
· Overall front-end sales activity across the Group in the year to date
is in line with internal expectations
· The financial performance across Financial Services and Surveying
& Valuation in the first two months of 2022 is in line with the Board's
expectations
· The Board is encouraged by front end sales activity in Estate Agency.
However, residential pipeline conversion remains slow, impacted by continuing
industry-wide capacity issues in conveyancing and this has delayed Estate
Agency profits. The Group retained a strong residential pipeline at 28
February 2022, which had increased by 10% compared to 31 December 2021, with
fall-throughs remaining at normal levels
· In 2022 the Board expects mortgage and housing transactions to revert
to pre-COVID levels with geopolitical uncertainties adding to existing
inflationary cost pressures. The Board has also considered the impact of a
market-wide continuation of slower residential pipeline conversion.
Nevertheless, at this early stage in the year, the Board's current expectation
is that the Group will deliver a full year Underlying Operating Profit in line
with its prior expectations, as the business is expected to continue to
benefit from the execution of its financial services led growth strategy and
strong performance of its Surveying & Valuation business
· The split of H1:H2 profit in 2022 is expected to revert to a more
typical profile with a skew to H2, after record housing transactions in H1
2021
· The Financial Services Division remains on track to be the most
profitable Division by 2023, with further organic growth in network financial
advisers expected, supported by additional advisers from Pivotal Growth firms
and to service distribution agreements
Commenting on today's announcement, David Stewart, Group Chief Executive said:
"I am pleased to report that LSL's core businesses are performing well and
that our Financial Services led growth strategy has made good progress.
"We expect mortgage and housing transactions to revert to pre-COVID levels
with geopolitical uncertainties adding to existing inflationary pressures.
These will affect our Estate Division in particular, and as always, we will be
agile and respond to market conditions as required.
"However, the benefits of both our growth strategy in Financial Services and
the significant progress made in Surveying & Valuation, mean that we
expect the housing market cycle to have a more limited impact on the Group's
results. We look forward to reporting further growth in Financial Services,
alongside continued investment in building our D2C businesses and I remain
excited about the Group's longer-term opportunities."
Notes:
1. Group Underlying Operating Profit is before exceptional
items, contingent consideration, amortisation of intangible assets and
share-based payments (see note 5 of the financial statements). In 2020
COVID-19 costs of £6.4m were recognised in Group Underlying Operating Profit.
Stated before COVID-19 costs, Group Underlying Operating Profit in 2020 was
£41.5m
2. Divisional Underlying Operating Profit and Divisional
Underlying Operating margin comparatives for 2020 are stated on the same basis
as Group
3. Gross revenue per adviser is calculated as FS Network gross
revenue (excluding the TMA mortgage club) per average adviser
FINANCIAL RESULTS
2021 2020 Var
Group Revenue (£m) 326.8 266.7 23%
Group Underlying Operating Profit(1) (£m) 49.3 35.2 40%
(post COVID-19 costs)
15% 13% +190bps
Group Underlying Operating margin
(post COVID-19 costs)
Exceptional Gains (£m) 31.1 0.7 nm
Exceptional Costs (£m) (2.0) (7.1) 71%
Group operating profit (£m) 72.6 23.9 205%
Profit before tax (£m) 69.9 20.9 234%
Basic Earnings per Share(2) (pence) 59.6 15.9 275%
Adjusted Basic Earnings per Share(2) (pence) 37.7 31.9 18%
Net Cash / (Net Bank Debt)(3) (£m) 48.5 (1.6) nm
Final proposed dividend (pence) 7.4 nil nm
Full year dividend (pence) 11.4 nil nm
Notes:
1 Group Underlying Operating Profit is before exceptional
items, contingent consideration, amortisation of intangible assets and
share-based payments (as set out in note 5 of the Financial Statements).
2 Refer to note 6 of the Financial Statements for the
calculation
3 Refer to note 11 to the Financial Statements for the
calculation
nm Not meaningful
For further information, please contact:
David Stewart, Group CEO
Adam Castleton, Group CFO
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)
GROUP CHIEF EXECUTIVE'S REVIEW
I am pleased to report that we achieved a record year of profits, with strong
performances in each of our core businesses - Financial Services Network,
Surveying & Valuation, and our owned and franchised estate agencies. We
continue to benefit from our Financial Services led growth strategy and we
expect the investments we made during 2021 to contribute to our performance in
future years.
Record Group results
Group Revenue grew by 23% to £327m, contributing to Group Underlying
Operating Profit of £49.3m, an increase of 40%. We ended the year with record
Net Cash of £48.5m.
In Financial Services, Underlying Operating Profit of our Network business
rose by 34%, supported by further growth in our network of financial advisers,
which grew by 11% year-on-year to 2,858 advisers. Underlying Operating Profit
for Financial Services as a whole increased by 20%, with further investment
being made in technology and our Direct-to-Consumer ('D2C') businesses.
Surveying & Valuation improved its operational efficiency and income per
job, contributing to a 46% rise in the Division's Underlying Operating Profit.
Estate Agency increased its residential market share across its core catchment
areas and its Underlying Operating Profit was 53% higher. Conversion of its
pipeline slowed in the second half, following the record market levels
experienced in the lead up to the Stamp Duty deadline, as well as
industry-wide capacity issues in conveyancing. The Division had a strong
pipeline going into 2022.
Strategic and operational developments to support growth
During the year, we invested significantly in growth opportunities in
Financial Services, reflecting the substantial long-term potential in this
market. This included strengthening our digital capabilities through the
acquisitions of Mortgage Gym and Direct Life Quote Holdings Limited and
launching our Pivotal Growth joint venture with Pollen Street Capital. Pivotal
Growth aims to "buy and build" a leading national mortgage broker and it
completed its first acquisition in December 2021, purchasing one of Scotland's
largest mortgage brokers. A further acquisition was made in February 2022,
purchasing a specialist new build mortgage and insurance brokerage. We are
also investing in our D2C financial services model. In addition to capital
investment and exceptional costs, we expensed costs of c.£3m in the year as
we progressed these initiatives, with further investment planned in 2022. Over
the medium-term, we are confident these actions will deliver substantial value
for shareholders.
Our focus on our core businesses led us to dispose of two non‐core holdings
in 2021. These were LMS, which we sold in May, and TMG, which completed in
July. The combined consideration was £41.3m in cash. We estimate that the
lost profit contribution from these businesses was approximately £1m in 2021.
We have continued to add strength and depth to the management team, with key
hires including a Group Chief Operating Officer, to drive our IT strategy and
transformation programme, a highly experienced leader for our Financial
Services D2C operation and a new Chief Financial Officer for Financial
Services.
Strategic priorities
Our two overarching strategic objectives are to:
1) Put Financial Services at the heart of our strategy, focussing on
growth markets
2) Reduce earnings exposure to housing market volatility by generating
more resilient and reliable revenues
In Financial Services, we aim to increase our number of financial advisers and
increase revenue per adviser.
In Surveying & Valuation, we aim to gain market share in both the B2B and
D2C markets, as well as develop new, data-enriched services for lenders.
In Estate Agency, we aim to grow profitable market share, optimise operating
efficiency, and develop our franchising proposition.
Our Living Responsibly and ESG programmes will play a central role in the
development and execution of our strategy and has been given a high priority
by our Board.
Strong balance sheet
The combination of the disposals discussed above and our cash generation in
the year resulted in a record Net Cash balance of £48.5m at the year-end. Our
balance sheet and strong cash generation enables further investment to deliver
the Group's ambitious growth strategy, including continued investment in
capability and technology, expected investment in Pivotal Growth D2C brokerage
acquisitions, and potential acquisition targets to build our Financial
Services Network business. The Board will continue to actively review capital
allocation regularly to ensure we maintain an efficient balance sheet.
Dividend
Our policy is to pay out 30% of Group Underlying Operating Profit after
finance and normalised tax charges. Having declared an interim dividend of 4.0
pence per share, the Board has recommended a final dividend of 7.4 pence.
This, if approved by shareholder, would give a total dividend for the year of
11.4 pence per share, in line with the policy.
The ex‐dividend date is 28 April 2022 with a record date of 29 April 2022
and a payment date of 3 June 2022. Shareholders can elect to reinvest their
cash dividend and purchase existing shares in LSL through a dividend
reinvestment plan. The election date is 12 May 2022.
A responsible business
We are keenly aware that sustained success is about more than just profits.
The Board is committed to ensuring that we are, first and foremost, a
responsible business and one that has a positive impact on the communities in
which we operate. In our ESG Report and in our Living Responsibly Report, you
can read more about our focus on inclusion and diversity, limiting our
environmental impact and our work in our communities. It is important that
what we do has real substance and is reflected in everything we do, and to
help achieve this we have set up independent colleague forums and working
groups to drive us forward in each of these areas.
The last couple of years have been hugely challenging and we could not have
achieved what we have without the help, hard work and commitment of our staff.
I want to thank everyone in the Group on behalf of the Board. I also thank our
shareholders for their continued support.
Outlook
Our strategy is on track and our core businesses are performing well.
Following the COVID-19 led boom we expect housing and mortgage transactions in
2022 to be more in line with the levels we saw prior to the pandemic, with
inflation and the pressure on household finances also having an impact.
Geopolitical uncertainty adds further risk. These issues are expected to
affect our Estate Agency Division in particular, and as always, we will be
agile and respond to market conditions as necessary.
However, the benefits of both our growth strategy in Financial Services and
the significant progress made in Surveying & Valuation, mean that we
expect the housing market cycle to have a more limited impact on the Group's
results. We look forward to reporting further growth in Financial Services,
alongside continued investment in building our D2C businesses. We look forward
to the future with confidence.
David Stewart
Group Chief Executive Officer
15 March 2022
FINANCIAL REVIEW
Group summary (P&L)
We achieved record Group profit, with growth in the core Financial Services
Network business, strong execution in Surveying & Valuation and profitable
market share gains in Estate Agency. The Group's financial result was in line
with the Board's expectations.
We supported the future growth of our Financial Services businesses and
expensed c.£3m in FS technology and D2C. The technology investment is
expected to begin to show tangible returns in the second half of 2022 as we
roll it out through our Financial Services Network, making our proposition
more attractive to potential recruits, increasing our efficiency, and
generating additional income from subscription fees. We expect to see the
major benefits to start coming through in 2023 and beyond. We also continued
to invest in other parts of the Group, notably key Group hires and sustained
marketing in Estate Agency to build the sales pipeline for 2022.
Group Revenue increased by 23% to £326.8m (2020: £266.7m), with year-on-year
revenue up by 29% in the Financial Services Division, 21% in the Surveying
& Valuation Division and 20% in the Estate Agency Division. H1 Group
Revenue was up 45%, as we traded well in a favourable housing market, with
record transaction levels ahead of the extended Stamp Duty holiday at the end
of June 2021. The prior year comparatives for H1 were impacted by COVID-19. H2
Group Revenue was up 6%, reflecting the lower relative level of market
activity as well as industry-wide capacity issues in conveyancing impacting
pipeline conversion in Estate Agency and slower completion of purchase
mortgages in Financial Services.
Group Underlying Operating Profit(1) of £49.3m was a record result, 15% more
than the previous best in 2015, 40% more than 2020 (2020: £35.2m) and 36%
more than 2019 (2019: £37.0m). Group Underlying Operating margin of 15.1% was
up year-on-year by 190 bps. On a statutory basis, Group operating profit
increased 204% to £72.6m (2020: £23.9m).
The split of H1:H2 profit in 2022 will revert to a more typical profile with a
skew to H2, after record housing transactions in H1 2021.
Our profit turns into cash at a high rate, with adjusted cash-flow
conversion(2) of 106%. The Group finished the year with a very strong balance
sheet, reporting Net Cash of £48.5m (2020: Net Bank Debt £1.6m).
Total adjusted operating expenditure
Total adjusted operating expenses increased by 20% to £280.2m (2020:
£232.9m). This increase was predominantly in employee costs, with higher
commissions linked to the 23% year-on-year increase in revenue, while
prior-year employee costs included £15.7m of Government Coronavirus Job
Retention Scheme (CJRS) support, reduced payments whilst colleagues were on
furlough, the cancellation of all Executive Director bonuses, and other Senior
Management Team bonuses which were limited to a maximum of 5%. Other
discretionary costs also increased towards normalised levels in 2021 following
lower expenditure in 2020 resulting from the impact of COVID-19, which
included reduced marketing, office and travel expenditure and other reductions
in discretionary costs.
Group Underlying Operating Profit
Group Underlying Operating Profit of £49.3m was 40% above 2020 (£35.2m). In
2020, COVID-19 costs(3) of £6.4m were recognised in Group Underlying
Operating Profit. Stated before these COVID-19 costs, Group Underlying
Operating Profit in 2020 was £41.5m. The Group has not benefited from any
CJRS funds in 2021.
Other operating income, gain on sale of property, plant, and equipment
Other income, relating to rental income, was £0.9m (2020: £0.8m). A gain on
sale of £1.1m (2020: £0.02m) was generated from the disposal of seven
commercial properties in the Estate Agency Division, for total consideration
of £1.7m.
Income from joint ventures and associates
Income from joint ventures and associates of £0.7m (2020: £0.5m) mainly
comprised our share of LMS and TM Group profits prior to disposal, and our
share of set up costs of Pivotal Growth.
Share-based payments
The share-based payment charge of £1.9m (2020: £0.02m) consists of a charge
in the period of £2.6m, offset by lapses and adjustments for leavers and
options exercised in the period. The low charge in 2020 was largely as a
result of scheme lapses offsetting existing scheme charges.
Amortisation of intangible assets
The amortisation charge for 2021 was £4.5m (2020: £5.4m). The year-on-year
decrease was as a result, of some lettings books reaching full amortisation
during 2020.
Exceptional items
The exceptional gain of £31.1m (2020: £0.7m) relates to a £29.5m gain on
disposal of the Group's joint venture holdings in LMS (£3.2m gain) and TM
Group (£26.3m gain) for total proceeds of £41.3m and a release in the PI
Costs provision of £1.6m.
The exceptional cost of £2.0m (2020: £7.1m) relates to the formation of the
joint venture Pivotal Growth (£1.2m), restructuring costs in Embrace
Financial Services (£0.7m) and costs relating to the dissolution of the
previously owned associate holding in Mortgage Gym Limited.
Contingent consideration
The credit to the income statement in 2021 of £0.7m (2020: credit £0.5m),
relates mainly to the reassessment of the contingent consideration liability
for RSC, due to be paid in 2023.
Net financial costs
Net financial costs amounted to £2.7m (2020: £3.0m) and related principally
to unwinding of the IFRS 16 lease liability of £1.5m (H1 2020: £1.6m) and
interest and fees on the revolving credit facility of £1.0m (2020: £1.2m).
Profit before tax
Profit before tax increased to £69.9m (2020: £20.9m). This increase was
largely driven by the improvement in Group Underlying Operating Profit, the
exceptional gains on the sale of the investments in the LMS and TM Group joint
ventures and the reduction in exceptional costs.
Taxation
The tax charge of £8.0m (2020: £4.6m) represents an effective tax rate of
11.4%, lower than the headline UK tax rate of 19%, mainly due to profits on
the sale of joint venture investments not being subject to corporation tax.
Adjusting for the profits on the sale of joint venture investments, the
effective tax rate was 18.8%. Deferred tax assets and liabilities are revalued
to 25% (2020: 19%), the tax rate effective from 1 April 2023.
Basic and Adjusted Basic Earnings Per Share(4)
The Basic Earnings Per Share was 59.6 pence (2020: 15.9 pence). The Adjusted
Basic Earnings Per Share was 37.7 pence (2020: 31.9 pence), an increase of
18%.
Notes:
1 Group Underlying Operating Profit is before exceptional
items, contingent consideration, amortisation of intangible assets and
share-based payments (as set out in note 5 of the Financial Statements)
2 Adjusted cash-flow conversion defined as cash generated
from operations (pre PI and post lease liabilities) divided by Group
Underlying Operating Profit
3 In 2020 costs relating to COVID-19 were separately
identified relating to employee costs and property and related costs (as set
out in note 5 of the Financial Statements)
4 Refer to note 6 of the Financial Statements for the
calculation
DIVISIONAL REVIEW
Financial Services Division
Financial Summary FY
2021 2020 Var
P&L (£m)
Financial Services Network Gross revenue 295.9 243.5 26%
Financial Services Network (Net revenue) 38.3 31.3 23%
Financial Services Other 40.2 29.7 35%
Total revenue 78.5 61.0 29%
Mortgage net revenue 33.7 25.9 30%
Protection and general insurance net revenue 35.2 26.2 34%
Other net revenue 9.6 8.9 8%
Total revenue 78.5 61.0 29%
Financial Services Network 14.4 10.7 34%
Financial Services Other 0.4 1.6 (73)%
Underlying Operating Profit(1) 14.8 12.3 20%
(post COVID-19 costs)
Financial Services Network Margin 38% 34% +320bps
Financial Services, Other Margin 1% 5% -420bps
Underlying Operating margin 19% 20% -130bps
(post COVID-19 costs)
Underlying Operating Profit(1) 14.8 13.5 10%
(pre COVID-19 costs)
KPIs
LSL mortgage completion lending(2) (£bn) 41.1 32.6 26%
Total advisers 2,858 2,585 11%
Gross Revenue per ave adviser(3) (FS Network) (£'000s) 92.5 86.1 7%
Annualised premium equivalent (£m) 70.3 53.5 31%
Notes:
1 Underlying Operating Profit is stated on the same basis as
Group Underlying Operating profit (as set out in Note 5 of the Financial
Statements)
2 LSL mortgage completions lending quoted includes product
transfers
3 Gross revenue per adviser is calculated as Financial
Services Network gross revenue (excluding the TMA mortgage club) per active
adviser
Summary
Financial Services Division Revenue increased by 29%, with profit up by 20%.
Profits in the core Financial Services Network business increased by 34%, with
operating margins up 400bps to 38% (2020: 34%).
Total financial advisers at 31 December 2021 were up by a record 273
year-on-year to 2,858 and our share of the UK mortgage market grew to around
10%, further consolidating our position as the UK's largest mortgage and
insurance network(1).
We continued to support the future growth of our Financial Services
businesses, with significant investment during the year in technology,
development of capability, headcount to support growth, the establishment of
the Pivotal Growth joint venture and development of our D2C business. Whilst
suppressing profits in the short term, the investment will start to show
tangible returns in the second half of 2022, with more material benefits
expected in 2023 and beyond.
Financial overview
Net revenue reported for the year was up 29% to £78.5m (2019: £61.0m). H1
revenue increased by 39%, benefiting from a strong purchase mortgage market
and COVID-19 impacted comparatives. Revenue was up 20% in H2 reflecting
stronger relative comparatives, with higher refinancing volumes and slower
completion of purchase mortgages.
Underlying Operating Profit was up 20% to £14.8m (2019: £12.3m). In 2020,
COVID-19 costs of £1.2m were recognised in the Financial Services Division.
Stated before COVID-19 costs, Underlying Operating Profit in 2020 was £13.5m
and Underlying Operating Profit growth in 2021 was 10%.
The Division's revenue mix by product highlights the significance of our
insurance business and its success in arranging insurance 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
insurance related revenue. The split of Revenue by product type in 2021 was
43% for mortgage fees (2021: £33.7m), 45% for insurance fees (2021: £35.2m)
and 12% in other fees (2021: £9.6m).
For the first time, we are separately disclosing the profit of our core
Financial Services Network business, which comprises the PRIMIS Network and
the TMA mortgage club. This provides greater transparency and demonstrates the
consistent growth and strong margins of this core part of the Financial
Services Division. Financial Services Other comprises our New Homes
businesses, D2C businesses, technology businesses (Mortgage Gym and Direct
Life Quote Holdings Limited) which were both acquired during 2021 and the
Pivotal Growth Joint Venture.
Financial Services Network business
Our gross mortgage completion lending increased by 26% to £41.1bn (202:
£32.6bn) representing an increased share of the lending market excluding
product transfers(2) of 9.6% (2020: 9.0%).
Our accounting policy is to recognise Financial Services Network revenue as
the net amount of commission retained by the network. To provide additional
information, we now also disclose gross revenues. Gross revenues generated by
the Financial Services Network (including the TMA mortgage club) increased by
22% to £295.9m (2020: £243.5m). Financial Services Network net revenue
increased by 23% to £38.3m (2020: £31.3m).
Gross revenue per average adviser of £93k was a 7% increase (2020: £86k per
adviser). In general, advisers joining the Financial Services Network take
some time to reach maximum productivity, and as such make a relatively small
contribution to turnover in the year of their joining. Revenue in 2022 will
therefore benefit from a full year of the advisers who joined in 2021.
Underlying Operating Profit increased by 34% to £14.4m (2020: £10.7m) with
the Underlying Operating margin rising to 38% (2020: 34%), notwithstanding
significant investment in headcount made to support future growth. Profit was
up 87% in H1 and 3% in H2, reflecting the more buoyant market in H1 compared
to H2, the weaker COVID-19 impacted comparatives in H1 2020 and the strong
bounce-back from lockdown in H2 2020.
Financial Services Other
Financial Services Other revenue increased by 35%, largely reflecting the
acquisition of Direct Life Quote Holdings Limited in Q1 2021 and growth in our
D2C business, as a result of stronger housing transactions as well as the
benefit of the change of commercials between the Financial Services Division
and the Estate Agency Division, which was reported in the 2021 Interims.
Revenue in New Build was broadly flat. Financial Services Other Underlying
Operating Profit reduced to £0.4m (2020: £1.6m), reflecting the investment
for future growth, weaker execution in New Build, and D2C profit increasing in
the more buoyant market, albeit with weaker conversion rates from our owned
and franchised Estate Agency leads as we switched resources to focus on
launching the TPFG deal.
Financial Services Other profit is stated after expensing c.£3m in FS
technology and D2C, including costs of the TPFG contract and the Pivotal
Growth joint venture set up costs. As anticipated, the TPFG contract will
continue to act as a drag on profitability in 2022 and is expected to generate
a positive contribution by 2023. The Pivotal Growth joint venture was
established in April 2021, with a net loss in 2021 of £0.9m representing
set-up costs and overheads. A positive contribution is expected in 2022,
dependant on the profile of acquisition undertaken and the financing means
used.
As well as significant investment in Mortgage Gym, we continued to invest in
the Financial Services Network technology platform (Toolbox), to deliver
benefits to firms and their advisers and create further efficiencies and
improved functionality. Capital investment in the platform amounted to £0.5m
in 2021 (2020: £0.5m).
Notes:
1 UK's largest mortgage and insurance network based on LSL
estimates
2 New mortgage lending by purpose of loan, UK (BOE) - Table
MM23
Surveying & Valuation Division
Financial Summary FY
2021 2020 Var
P&L (£m)
Total revenue 93.7 77.1 21%
Underlying Operating Profit(1) 23.6 16.2 46%
(post COVID-19 costs)
Underlying Operating margin 25% 21% 420bps
(post COVID-19 costs)
Underlying Operating Profit(1) 23.6 17.9 32%
(pre COVID-19 costs)
Underlying Operating margin 25% 23% 200bps
(pre COVID-19 costs)
KPIs
Jobs performed (000's) 541 487 11%
Jobs per average Surveyor 1,079 947 14%
Revenue from private surveys (£m) 2.2 1.1 96%
Income per job (£) 173 159 9%
Operational surveyors employed (FTE(2)) 489 513 (5)%
Notes:
1 Underlying Operating Profit is stated on the same basis as
Group Underlying Operating profit (as set out in note 5 of the Financial
Statements)
2 Full Time Equivalent (FTE)
Summary
The Surveying & Valuation Division's Underlying Operating Profit increased
by 46%, as we traded very well in favourable markets during H1 and benefited
in H2 from increased key lender allocations. Surveyor capacity utilisation
also improved in 2021, with 11% more jobs performed whilst employing fewer
operational surveyors. Underlying Operating margin increased to 25% (2020:
21%), due to improved utilisation and higher income per job.
We estimate that we increased market share in 2021, while maintaining
operational resilience and providing high-quality service in a very busy
market. We were named Mortgage Surveyor of the Year at the 2021 Mortgage
Awards organised by Money Age. During 2021, two key supplier contracts were
renewed, increasing allocations, and we also achieved increases in allocations
from some existing lender clients. Around three quarters of our total annual
volume is currently secured for two or more years.
Financial overview
Revenue increased by 21% to a record £93.7m (2020: £77.1m). H1 revenue was
up 48% compared to COVID-19 impacted H1 2020. H2 revenue was up 3%, which was
a very strong performance given H2 total mortgage approvals for house
purchases were down 22% compared to the same period in the prior year. At the
2021 Interims, we identified the opportunity to commercialise valuable data
gathered as part of the valuation process. Revenue for data services of £0.1m
was generated for the first time during H2.
Underlying Operating Profit increased by 46% to £23.6m (2020: £16.2m), up
179% in H1 and up 1% in H2. In 2020, COVID-19 costs of £1.7m were recognised
in the Surveying & Valuation Division. Stated before COVID-19 costs,
Underlying Operating Profit in 2020 was £17.9m.
Income per job increased by 9% to £173 (2020: £159), reflecting an improved
lender mix, house price inflation and a slightly lower proportion of remote
valuations in 2021 of 18%, compared to the COVID-19 impacted period in 2020,
during which remote valuations made up 24% of the total.
During 2021, 71% of the Division's revenues 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 period was 541,000, which was 11% greater than 2020.
At 31 December 2021, the total provision for professional indemnity (PI) costs
was £3.9m (31 December 2020: £7.0m). The Group continued to make positive
progress in addressing historic PI claims and there was a net £1.6m
exceptional gain in the year. The number of new valuation claims provided for
in the period remained very low.
The number of operational surveyors employed (FTE) at 31 December 2021
slightly reduced to 489 (31 December 2020: 513). Our graduate and trainee
mentoring programmes continue to provide new productive surveyors, to
alleviate any capacity constraints in the market.
Estate Agency Division
Financial Summary FY
2021 2020 Var
P&L (£m)
Residential Sales exchange income 71.7 48.8 47%
Lettings Income 62.0 58.6 6%
Other Income 20.8 21.2 (2)%
Total revenue 154.6 128.7 20%
Underlying Operating Profit(1) 18.4 12.1 53%
(post COVID-19 costs)
Underlying Operating margin 12% 9% 250bps
(post COVID-19 costs)
Underlying Operating Profit(1) 18.4 15.5 18%
(pre COVID-19 costs)
Underlying Operating margin 12% 12% -20bps
(pre COVID-19 costs)
KPIs
Exchange units 18,845 12,921 46%
Managed properties 24,372 24,804 (2)%
Owned branches 225 225 -
Franchise branches 128 131 -2%
Total Estate Agency branches 353 356 -1%
Notes:
1 'Other income' includes franchise, conveyancing services, Asset
Management, EPCs, Home Reports, utilities and other products and services to
clients of the branch network
2 Underlying Operating Profit is stated on the same basis as Group
Underlying Operating profit (as set out in note 5 of the Financial Statements)
Summary
Estate Agency Division Underlying Operating Profit increased by 53%, with
Underlying Operating margin up to 12% (2020: 9%), benefiting from good trading
in favourable residential markets in H1 and an increase during the year in our
residential market share across the core catchment areas in which we compete.
The strong sales pipelines coming into 2021, favourable market conditions and
very high exchange volumes in the lead up to the extended Stamp Duty holiday
that ended in June, contributed to very strong residential sales exchange
income in H1. Estate Agency residential pipeline conversion slowed in H2 2021,
following the record market levels experienced in the lead up to the 30 June
2021 Stamp Duty deadline and capacity issues in the conveyancing market.
Financial overview
Total Estate Agency Division revenue increased by 20% to £154.6m (2020:
£128.7m), increasing by 46% in H1 and 1% in H2, reflecting the residential
market dynamics described above.
Estate Agency Underlying Operating Profit increased by 53% to £18.4m (2020:
£12.1m). H1 2021 Underlying Operating Profit of £12.5m was very
significantly higher than H1 2020 (H1 2020: £2.4m), benefiting from the
strong opening pipelines and very strong Residential Sales performance.
Profits in H2 were £5.9m (2020: £9.7m) largely reflecting reduced pipelines
following the record June 2021 exchanges, a flat housing market in H2 compared
to the prior year and the slowdown in exchanges in Q4 2021. In addition, lost
profit contribution following the disposal of the non-core holdings in LMS and
TM Group, reduced comparative profit further in H2 by a total of c.£1m.
Underlying Operating Profit also benefited from the improved franchise
revenues of £2.7m in 2021 (2020: £1.7m).
In 2020, COVID-19 costs of £3.4m were recognised in the Estate Agency
Division. Stated before COVID-19 costs, Underlying Operating Profit in 2020
was £15.5m.
Residential Sales
Residential Sales exchange income increased by 47% to £71.7m (2020: £48.8m).
The number of exchange units increased by 46% on the prior year. This is ahead
of the overall market trend on a national level, reflecting the increase in
market share in the locations we trade in. Residential Sales exchange income
was up by 117% in H1 and 4% in H2. The Residential Sales exchange pipeline at
31 December 2021 was 7% lower than the record pipeline reported at the same
date in 2020.
Lettings
In the lettings market there was a very limited supply of new instructions and
we therefore focused on reletting and retaining our managed property
portfolio. The total number of managed properties at 31 December 2021 was
24,372, broadly in line with the same date in 2020. Total Lettings income
increased by 6% to £62.0m (2020: £58.6m) largely reflecting an increase in
Q2 2021 compared to the COVID-19 impacted prior year in the same period.
Other income
Other income was down 2% to £20.8m (2020: £21.2m) with strong residential
markets benefiting conveyancing and other income (up 43%) and franchise income
(up 64%). These increases were more than offset by falls in Estate Agency
share of Financial Services income, which was down 36% primarily reflecting
the changed commercial arrangement with the Financial Services Division, as
reported at the 2021 Interim Results Statement, and Asset Management (down
10%) due to lower market repossession volumes.
BALANCE SHEET REVIEW
Goodwill
The carrying value of goodwill is £160.9m (31 December 2020: £159.9m), with
£1.0m added due to the acquisition of Direct Life Quote Holdings Limited. No
impairment is required from the Group's annual impairment testing.
Other intangible assets and property, plant and equipment
Total capital expenditure in the year amounted to £6.9m (2020: £4.1m). We
continued to invest in technology and the capital expenditure in the year,
including £2.2m (2020: £1.8m) for further development of the Toolbox
platform in the Financial Services Division and investment by the Estate
Agency Division in third-party property software. The prior year also
reflected cash conservation measures taken during the lockdown, which focused
capital spend on essential projects.
Financial assets and investments in joint ventures and associates
Financial assets
Financial assets of £5.7m at 31 December 2021 (2020: £9.6m) comprise
investments in equity instruments 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 this investment has been assessed
and a fair value impairment of £2.0m has been made through the Statement of
Other Comprehensive Income. The carrying value of the Group's investment at 31
December 2021 is £4.5m (2020: £6.5m).
The decrease in the year also included settlement of secured loan notes, as
consideration for the purchase of the trade and assets of Mortgage Gym
Limited.
Joint ventures
The Group established the Pivotal Growth joint venture during the year and
held a 47.8% interest at 31 December 2021. The joint venture is equity
accounted and is held on the balance sheet at £1.6m at 31 December 2021,
representing equity investment during the period less our share of costs for
the period.
During 2021, we disposed of our entire holding in both non-core businesses LMS
(May 2021) and TM Group (July 2021) for total proceeds of £41.3m. At 31
December 2020, these businesses had been held on the balance sheet at £11.4m.
As reported at the 2021 Interims, as part of the LMS sale we agreed to provide
an indemnity to a maximum of £2m in relation to claims of fraud by an LMS
panel law firm. We are required to assess the fair value of the most probable
outcome on this indemnity. There is uncertainty around how likely a claim can
be made by the four banks with identified losses. We have assessed the
available information on the claims and in line with the accounting standards,
a provision for our share of these claims has been included of £0.6m,
offsetting the gain on disposal of LMS.
Mortgage Gym
In February 2021, the Group acquired the trade and assets of Mortgage Gym
Limited, a former associate of the Group, for £2.4m. The loan notes valued at
£2.24m at 31 December 2020 were offset against the consideration for the
purchase from the administrators, reducing the balance of these loan notes to
nil. The exceptional write down of the £2.0m carrying value of the investment
in Mortgage Gym Limited was recognised in the Financial Statements in the
Annual Report and Accounts 2020.
Bank facilities / Net Bank Debt / Liquidity
On 24 February 2021, we 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 arranging the banking facility, the Board took the opportunity to review
the Group's borrowing requirements in light of our strong cash generation and
the Group's aim of reducing its reliance on the housing market. We therefore
reduced the size of the committed facility and 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 facility is provided by Barclays Bank PLC and Santander UK plc, two
long-standing banking partners, alongside NatWest Bank plc, a new member of
the banking syndicate. We have a strong and long-standing relationship with
NatWest Bank plc, through our Financial Services and Surveying & Valuation
Divisions.
At 31 December 2021, Net Cash was at a historic high of £48.5m (2020: Net
Bank Debt: £1.6m).
The Group generated adjusted cash from operations of £37.7m (2020: £66.3m).
After adjusting for payments made during 2021 for tax payment deferrals agreed
with HMRC relating to 2020, the cash-flow conversion(1) rate in 2021 was 106%
(2020: 122%). The reported cash-flow conversion rate before adjusting for tax
deferral payments, was 76% (2020: 159%).
The net increase in cash and cash equivalents of £37.0m during 2021 (2020:
£11.4m increase) included £41.3m proceeds from the sale of investments in
LMS and TM Group, investments in Pivotal Growth (£2.5m) and Direct Life Quote
Holdings Limited (£1.8m), capital expenditure of £6.9m (2020: £4.1m) and
payment of the reinstated 2021 Interim dividend of £4.2m (2020: £nil
dividends paid). Working capital out-flows included payments for tax deferrals
from 2020, with provisions also decreasing by £3.2m (2019: decrease of
£1.5m), due to the positive progress in addressing historic PI claims.
Contingent consideration
Contingent consideration at 31 December 2021 was £3.0m (31 December 2020:
£5.4m). Contingent consideration relates primarily to the cost of acquiring
the remaining shares in RSC. The year-on-year reduction reflects part
settlement and an update to forecasts, both relating to RSC, with additions in
the period due to the acquisition of Direct Life and Quote Holdings Limited.
Treasury and Risk Management
We have 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 the Annual Report and Accounts.
International Financial Reporting Standards (IFRS)
The Financial Statements have been prepared in accordance with international
accounting standards in conformity with the requirements of the Companies Act
2006 and UK adopted International Accounting Standards.
Notes:
1 Adjusted cash-flow conversion defined as cash generated
from operations (pre PI and post lease liabilities) divided by Group
Underlying Operating Profit
Group Income Statement
for the year ended 31 December 2021
2021 2020
Note £'000 £'000
Continuing Operations:
Revenue 3, 4 326,832 266,742
Operating expenditure:
Employee and subcontractor costs (202,269) (162,455)
Establishment costs (10,071) (9,528)
Depreciation on property, plant and equipment (12,500) (13,929)
Other operating costs (55,339) (46,938)
(280,179) (232,850)
Other operating income 937 783
Gain on sale of property, plant and equipment 1,061 15
Income from joint ventures and associates 668 493
Share-based payments (1,916) (18)
Amortisation of intangible assets (4,534) (5,395)
Exceptional gains 7 31,050 674
Exceptional costs 7 (2,045) (7,076)
Contingent consideration 710 544
Group operating profit 72,584 23,912
Finance costs (2,709) (3,134)
Finance income 14 144
Net finance costs (2,695) (2,990)
Profit before tax 69,889 20,922
Taxation charge 9 (7,985) (4,596)
Profit for the year 61,904 16,326
Attributable to:
Owners of the parent 61,941 16,326
Non-controlling interest (37) -
Earnings per Share expressed in pence per Share:
Basic 6 59.6 15.9
Diluted 6 59.2 15.7
Group Statement of Comprehensive Income
for the year ended 31 December 2021
2021 2020
£'000 £'000
Profit for the period 61,904 16,326
Items not to be reclassified to profit and loss in subsequent periods:
Revaluation of financial assets not recycled through income statement (1,557) -
Tax on revaluation (132)
(1,689) -
Total other comprehensive loss for the year, net of tax (1,689) -
Total comprehensive income, net of tax 60,215 16,326
Attributable to:
Owners of the parent 60,252 16,326
Non-controlling interest (37) -
Group Balance Sheet
as at 31 December 2021
2021 2020
£'000 £'000
Non-current assets
Goodwill 160,865 159,863
Other intangible assets 29,604 27,894
Property, plant and equipment 37,070 42,741
Financial assets 5,748 9,561
Investments in joint ventures and associates 1,610 11,406
Contract 733 433
assets
Total non-current assets 235,630 251,898
Current assets
Trade and other receivables 33,829 28,438
Contract assets 424 253
Current tax asset 1,142 184
Cash and cash equivalents 48,464 11,443
Total current assets 83,859 40,318
Total assets 319,489 292,216
Current liabilities
Financial liabilities (8,523) (12,466)
Trade and other payables 10 (64,206) (72,936)
Provisions for liabilities (775) (2,998)
Total current liabilities (73,504) (88,400)
Non-current liabilities
Financial liabilities (22,602) (40,060)
Deferred tax liability (2,073) (1,822)
Provisions for liabilities (3,191) (4,180)
Total non-current liabilities (27,866) (46,062)
Total liabilities (101,370) (134,462)
Net assets 218,119 157,754
Equity
Share capital 210 210
Share premium account 5,629 5,629
Share-based payment reserve 5,263 3,942
Shares held by EBT (3,063) (5,012)
Fair value reserve (15,273) (13,584)
Retained earnings 224,832 166,569
Total equity attributable to owners of the parent 217,598 157,754
Non-controlling interest 521 -
Total equity 218,119 157,754
Group Statement of Cash-Flows
for the year ended 31 December 2021
2021 2020
£'000 £'000
Profit before tax 69,889 20,922
Adjustments for:
Exceptional operating items and contingent consideration (29,716) 5,857
Depreciation of tangible assets 12,500 13,929
Amortisation of intangible assets 4,534 5,395
Share-based payments 1,916 18
Profit on disposal of fixed assets (1,061) (15)
Income from joint ventures and associates (668) (493)
Finance income (14) (144)
Finance costs 2,709 3,134
Operating cash-flows before movements in working capital 60,089 48,603
Movements in working capital
(Increase) / decrease in trade and other receivables (3,439) 8,553
(Decrease) / increase in trade and other payables (8,919) 13,606
Decrease in provisions (3,213) (1,474)
(15,571) 20,685
Cash generated from operations 44,518 69,288
Interest paid (2,554) (2,581)
Income taxes paid (8,528) (6,093)
Exceptional costs paid (2,045) (7,311)
Net cash generated from operating activities 31,391 53,303
Cash-flows used in investing activities
Acquisitions of subsidiaries and other businesses, net of cash acquired (730) (293)
Payment of contingent consideration (2,462) (169)
Investment in joint venture (2,477)
Investment in financial assets (14) (418)
Dividend received from joint venture 1,178 -
Cash received on sale of joint venture 41,349 -
Receipt of lease income 20 -
Purchase of property, plant and equipment and intangible assets (6,902) (4,050)
Proceeds from sale of property, plant and equipment 431 138
Net cash generated / (expended) on investing activities 30,393 (4,792)
(Repayment) / drawdown of loans (13,000) (28,883)
Payment of deferred consideration (122) (80)
Payments of lease liabilities (8,922) (8,304)
Receipt of lease Income - 23
Proceeds from the exercise of share options 1,447 176
Dividends paid (4,166) -
Net cash expended in financing activities (24,763) (37,068)
Net increase / (decrease) in cash and cash equivalents 37,021 11,443
Cash and cash equivalents at the end of the year 48,464 11,443
Group Statement of Changes in
Equity
for the year ended 31 December 2021
Share- based payment reserve
Share premium account
Share Shares held by EBT Fair value reserve Retained earnings Equity attributable to owners of the parent Non-controlling interest Total
capital equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2021 210 5,629 3,942 (5,012) (13,584) 166,569 157,754 - 157,754
Profit for the year - - - - - 61,941 61,941 (37) 61,904
Revaluation of financial assets - - - - (1,557) - (1,557) - (1,557)
Tax on revaluations - - - - (132) - (132) - (132)
Total comprehensive income for the year - - - - (1,689) 61,941 60,252 (37) 60,215
Acquisition of subsidiary - - - - - - - 558 558
Issued share capital in the year - - - - - - - - -
Exercise of options - - (990) 1,949 - 488 1,447 - 1,447
Dividend paid - - - - - (4,166) (4,166) - (4,166)
Share-based payments - - 1,916 - - - 1,916 - 1,916
Tax on share based payments - - 395 - - - 395 - 395
At 31 December 2021 210 5,629 5,263 (3,063) (15,273) 224,832 217,598 521 218,119
During the year ended 31 December 2021, the Trust acquired nil LSL shares.
During the period, 555,824 share options were exercised relating to LSL's
various share option schemes resulting in the Shares being sold by the
Trust. LSL received £1.4m on exercise of these options.
The notes on pages page to page form part of these Financial Statements.
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.
Notes to the Preliminary Results Announcement
The above results and the accompanying notes do not constitute statutory
accounts within the meaning of Section 435 of the Companies Act 2006.
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 who were members of the Board in 2021 confirm
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 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
December 2020. 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 March 2023. 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 2021.
In preparing the Group Financial Statements Management has considered the
impact of climate change, taking into account the relevant disclosures in the
Strategic Report, including those made in accordance with the recommendations
of the Taskforce on Climate‐related Financial Disclosures. Recognising that
the environmental impact of the Group's operations is relatively low, no
issues were identified that would impact the carrying values of the Group's
assets or have any other impact on the Financial Statements.
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 2021
Financial Services Surveying & Valuation
£'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 84,818 93,699 71,737 32,268 2,217 11,162 295,901
Services transferred over time - - - 29,783 1,148 - 30,931
Total revenue from contracts with customers 84,818 93,699 71,737 62,051 3,365 11,162 326,832
Year ended 31 December 2020
Financial Services £'000 Surveying & Valuation
£'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
2021 2020
£'000 £'000
Revenue from services 326,832 266,742
Operating revenue 326,832 266,742
Rental income 937 783
Other operating income 937 783
Total revenue 327,769 267,525
4. Segment analysis of revenue and operating profit
LSL reports three segments: Financial Services; Surveying & Valuation; and
Estate Agency:
· The Financial Services Division is a provider of services to mortgage
intermediaries and specialist mortgage and insurance advice to estate agency
and new build customers
· The Surveying & Valuation Division provides a valuations and
professional surveying service of residential properties to various lenders
and individual customers
· The Estate Agency Division provides services related to the sale and
letting of residential properties. It operates a network of high street
branches, arranges conveyancing services and for a range of lenders provides
repossession and asset management services.
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 2021 and
the financial year ended 31 December 2020.
Year ended 31 December 2021
Financial Services Surveying Estate Agency Unallocated Total
& Valuation
Income Statement information £'000 £'000 £'000 £'000 £'000
Revenue from external customers 84,818 93,699 148,315 - 326,832
Introducer's fee (6,287) - 6,287 - -
Total revenue 78,531 93,699 154,602 - 326,832
Segmental result:
Group Underlying Operating Profit 14,787 23,609 18,430 (7,507) 49,319
Operating profit / (loss) 9,976 24,721 46,464 (8,577) 72,584
Finance Income 14
Finance costs (2,709)
Profit before tax 69,889
Taxation (7,985)
Profit for the year 61,904
Balance sheet information
Segment assets - intangible 20,779 11,086 158,531 73 190,469
Segment assets - other 9,891 12,772 55,046 51,311 129,020
Total Segment assets 30,670 23,858 213,577 51,384 319,489
Total Segment liabilities (25,343) (20,621) (50,130) (5,276) (101,370)
Net assets / (liabilities) 5,327 3,237 163,447 46,108 218,119
Group Underlying Operating Profit is as defined in note 6 to these condensed
Financial Statements.
In the year the Group sold its interests in the two joint ventures recorded in
the Estate Agency Division, results for these joint ventures are recorded to
their disposal dates. The Group acquired an interest in a joint venture in the
Financial Services Division during April 2021.
Unallocated net assets comprise Intangible assets and plant and equipment
£0.1m, other assets £3.0m, cash £48.5m, accruals and other payables £3.4m
current and deferred tax liabilities £2.1m. Unallocated result comprises
costs relating to the parent company.
Year ended 31 December 2020
Financial Services Surveying Estate Agency Unallocated Total
& Valuation
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 other assets £2.5m, cash £11.4m,
accruals and other payables £2.6m, current and deferred tax liabilities
£1.8m and revolving credit facility overdraft £13m. Unallocated result
comprises costs relating to the parent company.
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.
In the prior year, costs relating to COVID-19 were separately identified and
excluded from Group Underlying Operating Profit as the Directors considered
that these adjusted measures shown give a better and more consistent
indication of the Group's underlying performance. The most significant areas
of costs relating to COVID-19 were employee costs and property and related
asset costs. In 2021, the group has not incurred separately identifiable costs
related to COVID-19 and has not excluded any from Group underlying operating
profit.
The three adjusted measures reported by the Group are:
· Group Underlying Operating Profit
· Adjusted Basic EPS
· Adjusted diluted EPS
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:
2021 2020
£'000 £'000
Group operating profit 4 72,584 23,912
Share-based payments 1,916 18
Amortisation of intangible assets 4,534 5,395
Exceptional gains (31,050) (674)
Exceptional costs 2,045 7,076
Contingent consideration (credit)/ charge (710) (544)
Group Underlying Operating Profit 49,319 35,183
Total costs related to COVID-19 - 6,358
Group Underlying Operating Profit (pre COVID-19 costs) 49,319 41,541
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 2021 Profit after tax Weighted average number of Shares 2020
£'000 Per Share amount £'000 Per Share amount
Pence Pence
Basic EPS 61,941 103,912,148 59.6 16,326 102,939,680 15.9
Effect of dilutive share options 688,806 947,704
Diluted EPS 61,941 104,600,954 59.2 16,326 103,887,384 15.7
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:
2021 2020
£'000 £'000
Group Underlying Operating Profit 49,319 41,541
Loss attributable to non-controlling interest 37 -
Net finance costs (excluding exceptional and contingent consideration items (1,047) (1,062)
and discounting on lease liabilities)
Normalised taxation (tax rate 19% 2019: 19%) (9,171) (7,691)
Adjusted profit after tax attributable to owners of the parent 39,138 32,788
Adjusted basic and diluted EPS
Adjusted profit after tax Weighted average number of Shares 2021 Adjusted profit after tax Weighted average number of Shares 2020
£'000 Per Share amount £'000 Per Share amount
Pence
Pence
Adjusted basic EPS 39,138 103,912,148 37.7 32,788 102,939,680 31.9
Effect of dilutive share options 688,806 947,704
Adjusted diluted EPS 39,138 104,600,954 37.4 32,788 103,887,384 31.6
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 and share-based
payments. The effective tax rate used is 19.0% (31 December 2020: 19.0%)
7. Exceptional items
2021 2020
£'000 £'000
Exceptional costs:
Exceptional costs in relation to investment in joint venture 1,179 -
Embrace Financial Services restructuring project 714 -
Branch / centre closure and restructuring costs including redundancy costs - 2,312
Aborted merger deal costs - 2,350
Dissolution and impairment of associate Mortgage Gym 152 1,992
Other - 422
2,045 7,076
Exceptional gains:
Exceptional gain in relation to historic PI costs (1,641) (674)
Exceptional gain in relation to sale of joint ventures (29,409) -
(31,050) (674)
Exceptional costs
Exceptional costs in relation to investment in joint venture
Costs relating to class 1 circular, shareholder meeting and the set-up of
Pivotal Growth
There were £1.2 m (2020: nil) of non-recurring and material exceptional costs
relating to the formation of Pivotal Group, a new joint venture. No further
costs are expected in relation to this.
Embrace Financial Services restructuring project
There were £0.7m (2020: nil) of non-recurring and material exceptional costs
relating to the restructure of Embrace Financial Services. No further costs
are expected in relation to this.
Dissolution of associate Mortgage Gym
Mortgage Gym associate went into administration in February 2021. At the time
the Group held £2.0m on its Balance Sheet as an investment in associate. The
Group recognised an impairment for the full value of it's holding in Mortgage
Gym, and the administrator fees of £0.2m. The £2.0m impairment was
recognised in the 2020 Group Financial Statements as an event after the
reporting period, with the Administrator fees being recognised in 2021. No
further costs are expected in relation to this.
Exceptional Gains
Provision for professional indemnity (PI) claims and insurance claim
notification
The Group continued to make positive progress in settling historic PI claims,
in which actual settlement costs have been lower than expected, and therefore
there has been a release of £1.6m in 2021 (December 2020: £0.7m) in relation
to exceptional PI claims.
Disposal of interest in joint ventures
In May 2021, the Group disposed of its 49.6% interest in Cybele Solutions
Holdings Limited ("LMS") for consideration of £12m. The net gain recognised
on sale of LMS was £3.2m.
In August 2021, the Group disposed of its 32.34% interest in TM Group Limited
("TMG") for consideration of £29.3m. The net gain recognised on sale of LMS
was £26.2m.
8. Dividends paid and proposed
2021 2020
£'000 £'000
Declared and paid during the year:
2021 Interim: 4.0 pence per share 4,166 -
4,166 -
Dividends on Ordinary Shares proposed (not recognised as a liability as at 31
December):
Equity dividends on ordinary shares:
Dividend: 7.4 pence per share (2021: nil) 7,689 -
9. Taxation
The major components of income tax charge in the interim Group income
statements are:
2021 2020
£'000 £'000
UK corporation tax:
- current year charge 7,873 5,111
- adjustment in respect of prior years (251) (409)
7,622 4,702
Deferred tax:
Origination and reversal of temporary differences (179) (597)
Changes in tax rates 562 243
Adjustment in respect of prior year (20) 248
363 (106)
Total tax charge in the income statement 7,985 4,596
Corporation tax is recognised at the headline UK corporation tax rate of 19%
(2020: 19%).
The opening deferred tax balances in the financial statements were measured at
19%. For the year ended 31 December 2021, a tax rate of 25% has been applied
in line with rates enacted by the Finance Act 2021 which was enacted on 10
June 2021. This gives rise to a debit to the profit and loss account of
£0.6m.
The effective rate of tax for the year was 11.4% (2020: 22.0%). The effective
tax rate for 2021 is lower than the headline UK tax rate for several reasons,
the most significant being the profit on disposal of investments which are not
taxable as they qualify for Substantial Shareholders Exemption.
Deferred tax debited directly to other comprehensive income is £0.1m (2020:
£nil). Income tax credited directly to the share-based payment reserve is
£0.4m (2020: £nil).
10. Trade and other payables
2021 2020
£'000 £'000
Current
Trade payables 8,207 11,733
Other taxes and social security payable 12,247 24,971
Other payables 3,600 2,291
Accruals 35,222 29,412
Lapse provision 4,930 4,529
64,206 72,936
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 lapse
experience. 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 Cash/ Bank Debt
2021 2020
£'000 £'000
Interest bearing loans and borrowings (including loan notes, overdraft, IFRS16
lease liabilities, contingent and deferred consideration
- Current 8,523 12,466
- Non-current 22,602 40,060
31,125 52,526
Unsecured loan notes - -
Less: cash and short-term deposits (48,464) (11,443)
Less: IFRS 16 Lessee financial liabilities (28,117) (33,957)
Less: deferred and contingent consideration (3,008) (5,569)
Net Bank (Cash)/Debt at the end of the period (48,464) 1,557
12. Events after the reporting period
In February 2022, LSL invested an additional £0.9m in its Pivotal Growth
joint venture to fund its buy and build growth strategy.
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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