REG - LSL Property Svcs. - LSL FRANCHISES ESTATE AGENCY NETWORK

LSL Property ServicesAnnouncement

04/05/2023 08:30

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RNS Number : 4190Y  LSL Property Services PLC  04 May 2023

 
                4 May 2023

LSL Property Services plc ("LSL" or "Group")

SIGNIFICANT STRATEGIC MILESTONE IN TRANSITION TO B2B SERVICES GROUP

LSL FRANCHISES ESTATE AGENCY NETWORK

LSL announces today that its entire owned estate agency network of 183
branches will become franchises. Long-term franchise agreements have been
reached for 143 of its branches with agreements for the remaining 40 branches
at an advanced stage. Following completion of these agreements, LSL will
become one of the largest providers of estate agency franchise services in the
UK, supplying services to a network of just over 300 branches.

This milestone announcement completes a significant programme of work
initiated following a detailed strategic review of our estate agency business
and marks a further significant step taken to simplify the Group and focus its
activities on business-to-business services.

The resultant business is well-placed to deliver Group margins that are
structurally higher than the Group has delivered historically.

Rationale

Operating a franchise network offers significant advantages, including:

·    A higher-margin business with a significantly smaller fixed cost
base, resulting in improved and substantially less volatile earnings through
housing market cycles

·    The continued distribution of related products and services,
including long-term provision of financial services

·    The potential to grow network footprint without significant
additional investment by supporting the expansion of franchisees and
recruiting new franchisees

·    The opportunity to benefit from the entrepreneurship and agility of
independent franchisees, resulting in a more productive, flexible, and
resilient business model

Franchise network

Prior to this restructure of its estate agency business, LSL operated a
network of 120 franchise branches. This network will now be supplemented by
the addition of the previously owned network of 183 branches, making LSL one
of the largest providers of estate agency franchise services in the UK, with
franchisee agreements negotiated with existing LSL franchisees and experienced
former members of the LSL Estate Agency Division management team.

LSL has appointed Paul Hardy as Managing Director of its Estate Agency
Franchise Business. Paul led this programme to transform the Estate Agency
branches, and previously held roles as Financial Services Division Commercial
Director and Estate Agency Division Finance Director.

The enlarged network of just over 300 franchise branches will be operated by
62 franchisees under the Your Move, Reeds Rains and LSLi group brands under
long-term royalty agreements. Following the sale of our London Estate Agent
Marsh & Parsons in January of this year, LSL will no longer own and manage
estate agent branches.

As part of this change, around 1,200 Estate Agency Division colleagues, mainly
branch-based personnel, will transfer to the franchisees, ensuring continuity
of service to estate agency customers.

Financial impact

Significant cost reductions will be achieved immediately with further savings
over time. The net impact on 2023 Underlying Operating Profit is expected to
be neutral. We expect the change will be accretive to Group profits through
housing market cycles from the beginning of 2024 onwards.

Franchising owned branches allows us to rationalise central functions. These
changes will take place during 2023 and 2024, delivering incremental phased
benefits. We estimate that this transaction, combined with the recent sale of
Marsh & Parsons, eliminates over £110m of a cost base of c.£125m
supporting the Estate Agency Division with the largest reduction taking place
immediately. This is in addition to cost reductions of c.£30m in the
Financial Services Division following the recent disposal of its D2C
brokerages to Pivotal Growth.

The enlarged franchise business will be less capital intensive. Whilst there
will be meaningful investment in new systems and technology to support the
development of a growing franchise business, overall capital expenditure will
be lower than previously, without the need to maintain an IT infrastructure to
operate a large branch network and with ongoing branch refurbishment to be
carried out by the franchisees.

We expect exceptional cash costs of around £6m in 2023 and a further £7m in
future periods, together with exceptional non-cash balance sheet items of
circa £6m. The exceptional expense primarily relates to leasehold
dilapidation provisions, redundancy costs, non-cash fixed asset write-offs and
legal costs.

David Stewart, Group Chief Executive, commented:

"Today's announcement is a significant milestone in the execution of our
strategy and is the culmination of a substantial effort on the part of
colleagues across the business. The estate agency franchise model is similar
to our financial services network and it will make us a much simpler, more
resilient business whilst opening up new opportunities to grow our Estate
Agency Division. I am delighted we have been able to complete this major
project and excited about the growth opportunities ahead."

 

This announcement contains inside information.

 

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

 Simon Compton

 George Beale
 Buchanan                    0207 466 5000  LSL@buchanan.uk.com (mailto:LSL@buchanan.uk.com)

 

 

Further information about the franchising transaction

 

Related party transactions

The new franchisees include two former LSL subsidiary directors Oliver Blake
and David Vertannes, whose agreements are smaller related party transactions
which fall within the provision of Listing Rule 11.1.10R.

 

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 announcement should be construed
as a profit forecast. LSL and its Directors accept no liability to third
parties in respect of this announcement 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 announcement.

 

 

Notes on LSL

 

LSL is one of the largest providers of services to mortgage intermediaries and
estate agent franchisees.

 

Its c.2,900 advisors represent around 10% of the total purchase and remortgage
market. PRIMIS was named Best Network, 300+ appointed representatives at the
2022 Mortgage Strategy Awards.

 

Its 62 estate agency franchisees will operate a network of just over 300
branches.

 

LSL is also one of the UK's largest providers of surveying and valuation
services, supplying seven out of the ten largest lenders in the UK. e.surv
was named Best Surveying Firm at the 2022 Mortgage Finance Gazette Awards.

 

For further information please visit LSL's website: lslps.co.uk
(http://www.lslps.co.uk/)

 

 

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