REG - LSL Property Svcs. - Pre-Close Trading Update

LSL Property ServicesAnnouncement

07/08/2023 07:00

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RNS Number : 4308I  LSL Property Services PLC  07 August 2023

 
                                      7
August 2023

 

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

Pre-Close Trading Update

LSL provides the following trading update for the six months ended 30 June
2023 ahead of publishing its Half Year results.

During the period, we made significant strategic progress to simplify the
Group and focus on business-to-business services, with the franchising of our
Estate Agency network and the disposals of Marsh & Parsons and our
direct-to-consumer financial services businesses.

As expected, the Group's results over H1 were impacted by significant changes
in the mortgage market, particularly our Surveying Division, as well as
Financial Services. We had expected some of these changes to moderate during
H2, with improved consumer sentiment and more stable lending conditions.
However, the larger than expected increase in the Bank of England base rate
announced in June has had a material impact on the mortgage market, reducing
the level of Purchase and Remortgage activity and increasing further the
proportion of Product Transfer business (where customers stay with their
existing lender on completion of their mortgage scheme).

Whilst Group Underlying Operating Profit was broadly in line with our
expectations in the first half, the recent change in mortgage market
conditions will significantly impact second half Group profits which are now
expected to be lower than our previous expectations.

Divisional trading performance: Financial Services

Our strategy has placed the Financial Services Network business at its core,
and in the first half of 2023 the independent mortgage broker business model
continued to demonstrate resilience and agility. In challenging conditions,
LSL members increased share in each of the sub-segments of the mortgage
market. Against the same six-month period in 2022, LSL Purchase lending
reduced by 27%, slightly less than the overall market reduction of 30%.
Remortgage lending decreased by 15% compared to the market which fell by 21%.
Product Transfer business increased by 48%, compared to the market which we
estimate was up c.15%. Total LSL mortgage lending advice declined just 4%
reflecting strong performance against the market, although higher Product
Transfers impacted margin, due to the lower Lender procuration fees. Whilst
this change in the nature and volume of mortgage lending was largely included
in our expectations for H1, the most recent trading following the June
interest rate rise indicates that this shift has increased further and we now
expect these conditions to persist in H2, with a resulting impact on margins
and full year profit.

Performance of LSL's independent mortgage broker firms was particularly
strong, increasing share of the Purchase and Remortgage market(1) from 6.2% to
6.6%. The combined distribution of LSL's previously owned direct-to-consumer
businesses which are now owned by Pivotal Growth but still members of the LSL
network, and LSL's mortgage club, was stable at 3.8%. Overall share of the UK
Purchase and Remortgage market was 10.4% (H1 2022: 10.1%).

LSL Network Protection sales were resilient despite the market conditions,
with revenue unchanged compared to H1 2022. The challenging market background
led to caution by network members on adviser levels, and adviser numbers fell
by 5% during the period. Encouragingly, the recruitment pipeline at 30 June,
built during the second quarter, was the highest since September 2021, which
will benefit future periods.

 

Divisional trading performance: Surveying

 

The impact of the challenging market conditions was most pronounced in
Surveying. Increased interest rates resulted in higher Product Transfers,
requiring no valuation service. Reduced activity in the Buy-to-Let and Equity
Release markets, and Purchase market more generally, also reduced valuation
instructions from lenders. In H1, Bank of England mortgage approvals reduced
by 27% year on year in the Purchase market, and by 31% for Remortgages. LSL
lender instructions fell by 27%, slightly better than the market.

 

Although instruction volume had been building steadily in the first half, more
recently trading has been significantly impacted by the larger than expected
interest rate increase. In recent weeks, our lender instructions fell by c.40%
to levels substantially below historic norms and are currently around half
those in the same period in 2022. A strong focus on cost will continue in H2,
however this will be balanced to ensure that the business retains sufficient
capacity to meet demand when the market recovers. This means that in the short
term, we will carry material excess staff costs so we can take advantage of
the significant profit opportunity in more normal market conditions.

 

Divisional trading performance: Estate Agency

In June, we executed contracts for the remaining few owned estate agency
branches, completing the franchising of our entire Estate Agency branch
network. The ongoing transition is proceeding well, with cost savings ahead of
plan.

Group financial performance in H1 2023

 

Given restructuring activity to date, reported revenue and costs are not
comparable between 2022 and 2023. Adjusting for the impact of franchising and
disposals, total Revenue was c.20% lower on a comparable basis, which compares
with a 27% reduction in the overall Purchase and Remortgage lending market,
and an 18% fall in housing transactions. Reported total Revenue was c.£104m
(H1 2022: £160.9m).

Total operating expenditure was c.31% lower than H1 2022. Costs in May and
June were down over 50% on the same period last year, reflecting significantly
lower costs due to the disposals and franchising of Estate Agency, as well as
other cost measures across the business.

 

The Group delivered Underlying Operating Profit of c.£3.5m, broadly in line
with our expectations (H1 2022: £14.2m).

 

At 30 June 2023, Net Cash was £36.0m (31 December 2022: Net Cash £40.1m, H1
2022: £30.7m), providing flexibility for future deployment of capital.

Outlook

The mortgage lending market in H2 remains highly uncertain, resulting in a
wider range of possible outcomes for the Group than usual. We now expect that
there will be lower levels of Purchase and Remortgaging activity than
previously forecast for the second half of the year, with this only partly
offset by increased lower margin Product Transfers. This change in the
mortgage market will significantly impact Surveying and will also affect
Financial Services, although to a lesser extent. Full year Group profits will
now be substantially lower than previously expected. We continue to expect
Group profits in the second half of the year to be an improvement on H1,
reflecting a more typical split across the year.

A further update on current trading and outlook will be shared with the Half
Year results in the second half of September.

David Stewart, Group CEO, commented:

"LSL made a lot of progress over the past 6 months, delivering important
strategic projects. Market conditions have been challenging, and more recently
have become more difficult, impacting this year's financial performance.

"The more challenging market conditions in the short-term will not prevent us
from continuing to take the required steps to deliver on the identified
opportunities for future growth. Our strong balance sheet allows us to take a
long-term view and we will continue to invest to deliver our Financial
Services Network growth strategy and retain the capacity required to enable
our Surveying business to meet the future demands of our clients. Our
Financial Services Network and Surveying businesses have established leading
market positions and have performed strongly in recent years and will perform
more strongly when the market recovers. Notwithstanding the near-term
challenges the Board remains confident about the Group's medium-term
prospects."

This announcement contains inside information.

Notes:

1         Share of the Purchase and Remortgage market is calculated
excluding product transfers. Source: New mortgage lending by purpose of loan,
UK (BOE) - Table MM23 (published 31 July 2023)

 

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)

 

Notes on LSL

 

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

 

Its c.2,700 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 61 estate agency franchisees operate a network of around 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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