REG - LSL Property Svcs. - TRADING UPDATE AND COVID-19 UPDATE

LSL Property ServicesAnnouncement

05/06/2020 07:00

RNS Number : 0389P
  
LSL Property Services PLC
  
05 June 2020
  
 

For Immediate Release                                                                                                                                      5 June 2020
 
 
LSL Property Services plc ("LSL" or "The Group")
 
TRADING UPDATE AND COVID-19 UPDATE
 
LSL reports strong first quarter trading and resilient performance in unprecedented market conditions with encouraging initial activity levels following easing of lockdown restrictions
 
LSL Property Services plc, a leading provider of residential property services incorporating financial services, estate agency, and surveying and valuation businesses, issues a trading update for Q1 to 31 March 2020 and also for April 2020 and a COVID-19 update following the easing of the lockdown.
 
HIGHLIGHTS
 
Strong financial performance in Q1 ended 31 March 2020
·      Group Underlying Operating Profit1 up by 62% to £3.4m compared with Q1 2019
·      Financial Services, Estate Agency and Surveying Divisions all report an increase in operating results over prior year
·      Net Bank Debt at 31 March 2020 of £42.1m, resulting in modest gearing2 at 0.97x Adjusted EBITDA
 
Decisive action taken in response to COVID-19 outbreak
·      Focus on maintenance of income streams, including lettings, mortgage brokerage, insurance and remote surveying valuations
·      All Board members voluntarily reduced salaries and fees by one-third
·      Reduction in payroll costs to reflect lower levels of activity, with the UK Government Coronavirus Job Retention Scheme deployed in respect of 73% of staff
 
Resilient financial performance during lockdown, generating an operating profit in April 2020
·      The Group generated an Underlying Operating Profit in April 2020 of £1.6m (2019: £2.9m)
·      April Group revenue reduced by 56% compared to prior year, reflecting the market-wide impact of COVID-19 on the Group's activities, and in particular Residential Sales and Surveying physical valuations
 
Well positioned to meet highly stressed conditions
·      Revolving credit facility of £100m, committed to May 2022
·      Stress testing carried out, assuming significant market stress throughout 2020, the results of which indicate that LSL will retain sufficient liquidity throughout
·      Group Net Banking Debt at 30 April 2020 reduced to £28.4m, representing gearing of 0.68x 12 month rolling Adjusted EBITDA against a covenant of 3.25 times
·      Measures remain in place to conserve cash
 
Quick response to easing of Government restrictions, focusing on health and wellbeing of staff and customers
·      Contingency plans already in place allowed the prompt reopening of Estate Agency branches and resumption of physical viewings and valuations in a safe environment
·      Effective implementation of non-physical (remote) Surveying valuations 
·      At 31 May 2020, 207 Estate Agency branches out of a total of 231 branches opened and available for meetings via pre booked appointment
·      41% of furloughed staff returned to work
·      Early indication of sales activity have been positive
·      Significant numbers of physical valuations undertaken, with high demand in June to clear lender pipelines and in respect of new instructions
·      Market conditions continue to be monitored closely
 
FURTHER DETAIL 
 
Financial performance - Q1 2020 
Group   
·      Group Underlying Operating Profit increased 62% to £3.4m (2019: £2.1m) 
·      Underlying Operating Profit increased in each of LSL's Operating Divisions versus 2019   
·      Group revenue decreased by 6% on a like-for-like basis, including the impact of the introduction of the Tenant Fee Ban in June 2019 and the reduction in trading in March 2020 both in the lead up to and, more acutely, following the announcement of the lockdown on 23 March 2020
·      Reported Group revenues fell 10% to £69.6m (2019: £77.1m), including the impact of 164 estate agency branches closed following the reshaping of the Your Move and Reeds Rains branch networks announced on 5 February 2019 and the factors noted above
·      Net Bank Debt at 31 March 2020 of £42.1m, resulting in modest gearing at 0.97x EBITDA 
 
Financial Services Division
·      Financial Services Division profitability continued to grow strongly, with Underlying Operating Profit up 27%
·      Total Financial Services Division revenue decreased by 6%, including the impact of the reshaping of the Your Move and Reeds Rains branch networks during Q1 2019 
·      Mortgage completions increased year-on-year by 8% to £7.8bn, representing 9% of market
·      Total appointed representative firms at 31 March 2020 of 864 (31 March 2019: 844)
·      The number of financial advisers increased by 2% to 2,342
 
Estate Agency Division
·      Material improvement in financial performance compared to prior year, benefiting from the reshaping of the Your Move and Reeds Rains branch networks announced on 5 February 2019, and a strong year-on-year performance improvement in Marsh & Parsons 
·      Lead sales indicators throughout the Estate Agency branch network were positive, with strong year-on-year growth in net sales in the period to the lockdown on 23 March 2020 
·      The Estate Agency sales pipeline at 31 March 2020 of £17.3m, was £2.7m above prior year
·      Total like-for-like Residential Sales Exchange Income increased by 1% 
·      Total like-for-like Lettings income decreased by 9%, including the impact of the Tenant Fee Ban introduced in June 2019
·      Marsh & Parsons performed strongly, with total revenue up 5%, and Residential Sales Exchange Income up 27%
 
Surveying Division
·      Underlying Operating Profit increased 3%, with performance benefiting from back office cost efficiencies made during the quarter
·      Revenue was broadly in line with prior year
·      In the period up until lockdown, 2020 revenue was 7% higher than the same period in the prior year
·      Continued investment in technology to enhance our product offering
 
LSL COVID-19 Response 
The Board reacted quickly to the emergence of the COVID-19 virus, and the announcement of the national lockdown on 23 March 2020. In formulating its measures, the Board's priorities were to:
 
·      Safeguard the health and well-being of staff and customers
·      Optimise short-term financial performance
·      Safeguard cash and manage liquidity in a sustainable way in line with the banking covenants
·      Understand the impact of extreme scenarios and put in place plans to safeguard the Group's financial health under plausible worst-case conditions
·      Retain the capability required to take early advantage of any improvement
 
The resulting measures taken include:
 
·      Implementation of the annual pay review immediately suspended for all directors and staff3
·      All Board and Executive Committee members agreed a voluntary reduction of up to one third in salary and fees from 1 April 2020. This will be kept under review by LSL's Remuneration Committee 
·      In response to the drop in transaction volumes, at 30 April 2020, 73% of Group employees were on furlough, as part of the UK Government's Coronavirus Job Retention Scheme
·      All discretionary expenditure halted, and improved terms negotiated with a number of key suppliers
·      Residential Sales exchange income and Lettings income from new instructions for essential pipeline transactions secured in line with Government guidance
·      Implemented non-physical (remote) valuations with the majority of lender clients, allowing a proportion of revenue to be secured
·      Focus on meeting consumer demand for remortgage and protection products in Financial Services businesses 
 
Impact of lockdown on business volumes
As anticipated, the impact of the lockdown on housing market transactions was significant. Average metrics for LSL in the twelve weeks prior to the lockdown announced on 23 March 2020, compared to the average for the seven-week lockdown period up to 11 May 2020 were as follows: 
 
·      In the Estate Agency branch networks, Residential Sales Exchange Income per week reduced by 63% whilst new lettings and renewals reduced by 24%
·      Mortgage applications (excluding Estate Agency network) reduced by 25%, with continuing demand for advice for remortgages and product transfers 
·      Average Protection completions (excluding Estate Agency network) were highly resilient remaining at the same level in the period after lockdown 
·      General Insurance renewals (excluding Estate Agency network) were also highly resilient, being in line with the period before lockdown
·      Average weekly Surveying valuations reduced by 80%, with all remaining valuations conducted on a remote basis, in line with lockdown requirements
 
Financial performance in April 2020
Notwithstanding the full national lockdown that commenced on 23 March 2020 and continued throughout the whole of April and into May, LSL delivered a robust financial performance:
 
·      The Group generated an Underlying Operating Profit in April 2020 of £1.6m (2019: £2.9m)
·      In line with Group accounting policy, £1.2m of costs have been recognised and classed as exceptional due to the unprecedented situation related to the COVID-19 situation 
·      Group revenue reduced by 56% compared to prior year
·      Estate Agency and Surveying Divisions were more affected than Financial Services, which benefited from remortgage and protection activities as well as the resilience of our General Insurance business predominantly driven by renewals 
·      Financial Services revenue, excluding Estate Agency, reduced by only 18% compared to 2019, notwithstanding the significant market wide reduction in house purchase mortgages
·      Financial Services  contributed increased operating profit of £0.9m in April (2019: £0.7m) benefitting in particular from the arrangement of remortgage and protection products 
 
Group liquidity and banking covenants
The Board has a low risk appetite for financial gearing, reflected in relatively modest levels of bank debt. The Group has a Revolving Credit Facility in place of £100m, which is committed to May 2022. As at 30 April 2020, the Group had Net Banking Debt of £28.4m, and gearing of 0.68x twelve-month rolling Group Adjusted EBITDA against a banking covenant of 3.25 times. This represents a significant reduction from Net Banking Debt at 31 December 2019 of £41.9m, an improvement brought about by a number of steps including:
 
·      Suspension of the final dividend for the year ended 31 December 2019
·      Deferral of all non-critical capital expenditure
·      Deferral of tax payments according to HMRC guidance
·      Negotiation with key suppliers to improve terms and reduce cash outflow
·      Use of the UK Government's Coronavirus Job Retention Scheme
·      Acquisition activity put on hold
 
Cash flow continues to be monitored closely. As the COVID-19 situation has developed, the Board has considered the impact of a number of stress scenarios on its financial performance and liquidity position, and it continues to update these scenarios regularly in light of the best information available.
 
The future impact of the virus remains highly uncertain and this is reflected in the information reviewed by the Board, and in the steps management continues to take. Amongst the scenarios considered, is one which assumes the continuation of an effective lockdown position throughout the whole of 2020. The Board believes that, with appropriate mitigating actions, the Group has sufficient liquidity to cover each of the stress tests performed.  
 
Easing of lockdown restrictions
On 12 May 2020, it was announced that in England a number of residential housing market activities could resume from 13 May 2020.  These included the opening and operation of estate agency offices, as well as various types of work undertaken in people's homes such as viewings, physical valuations, removals for home moves and other essential parts of the residential sales and letting process. 
 
LSL had already put in place detailed contingency plans in preparation for any future relaxation of the lockdown rules. As a result of this preparation, we have been able to recommence business quickly and in a way that safeguards the health and well-being of staff and customers as far as possible. Estate Agency branches have been reconfigured to allow essential social distancing to take place, and equipped with precautionary elements, such as perspex screens and additional cleaning items, with all meetings scheduled by appointment and limited to 15 minutes.
 
The Group has conducted rigorous risk assessments of its premises, and put in place detailed training and guides to ensure they are conducted in relation to all of the re-opened premises. We hope that the robust measures will provide reassurance to staff and customers alike. 
 
The response from staff and customers has been extremely encouraging, following the easing of the lockdown restrictions:
 
Financial Services Division 
·      The daily run rate of PRIMIS purchase related mortgage applications in the three weeks since lockdown restrictions has increased by 44% compared to the seven weeks of lockdown
·      Mortgage search activity and customer enquiry activity increased following the easing of the lockdown restrictions 
·      Following a shift to refinance mortgage applications in April (86% re-mortgage / 14% purchase), in the last week of May as purchase activity increased, the mix shifted back towards purchase (67% refinance / 33% purchase)  
·      Mortgage completions notified by mortgage lenders in the first three weeks since restrictions have increased strongly as refinance mortgages arranged during the lockdown period and house purchases delayed by lockdown move through to completion
·      Strong pipeline of potential advisers and Appointed Representative firms seeking to join the network
 
Estate Agency Division 
·      207 LSL Estate Agency branches now open in England and Northern Ireland of LSL's owned and operated network totaling 231 branches. Branches in Scotland and Wales will open as appropriate and in line with Government advice
·      50% of employees previously furloughed in Estate Agency branches have now returned to work
·      In the three weeks following easing of lockdown restrictions, average weekly residential sales exchange income has so far recovered to 34% below the pre lockdown period, compared to the 63% reduction experienced during lockdown
·      Physical property valuations recommenced with higher than expected levels of buyer activity with over two thousand valuations carried out in the first three weeks since restrictions eased and a further one thousand bookings being taken
·      Tenant registration levels have returned to pre lockdown levels 
·      Video tours have been received positively by customers as a prelude to physical viewings. In Marsh & Parsons, for example, in the last week of May, 85% of first viewings for tenants were via video
 
Surveying Division 
·      Physical surveying valuations recommenced on 18 May 2020, starting gradually and increasing as clarification was issued by RICs on physical valuation guidelines 
·      Daily average volume of valuations post-lockdown have returned to 60% of pre-lockdown levels 
·      60% of employees previously furloughed have returned to work with further returns planned during June to increase capacity to service a growing lender demand and an increased pipeline of physical valuations 
                                                                                                                                                                                  
We will continue to monitor activity levels on a daily basis to ensure that LSL has the appropriate level of resources to optimise the Group's financial position. The Board welcomes the extension of UK Government's Coronavirus Job Retention Scheme to the end of October 2020, and the flexibility it provides will help to manage resources effectively, and safeguard as many jobs as possible.
 
AGM
LSL normally holds its AGM at the end of April, however due to the outbreak of COVID-19, the AGM arrangements have been under review. LSL has on 4 June 2020 published its Notice of Meeting advising Shareholders that the AGM will now be held on the 30 June 2020. The AGM will take place at LSL's office, Gateway 2, Holgate Park Drive, York  YO26 4GB. Details relating to the AGM arrangements which factor in the Government's guidance are available on the LSL website and are included in the AGM Notice, which is also available to view at www.lslps.co.uk. The arrangements are being kept under review and any amendments will be notified via the LSL website.
 
Outlook
The future course of the COVID-19 virus and its impact on the economy and the markets in which the Group operates, remains highly uncertain. In these conditions, it is not possible to provide an accurate assessment of trading prospects, and the Board therefore remains unable to provide financial guidance for the year ending 31 December 2020 and beyond. Guidance will be resumed when market conditions become clearer.
 
LSL has implemented a number of measures to reduce costs significantly, optimise the balance sheet position and afford the flexibility to respond to changing market conditions. These steps give the Board confidence that the Group can cope with severe stress conditions continuing throughout 2020, and management will continue to monitor the environment closely and continuously to preserve this position.
 
The steps taken in recent years to rationalise the Estate Agency branch networks and to build strong income streams in a number of sectors, notably Financial Services, has helped position the Group to meet the exceptional challenges resulting from the COVID-19 outbreak. The Board looks forward to a return to a strategy focused on growth in each of its principal activities once the current crisis recedes.
 
Commenting on today's announcement, David Stewart, Group Chief Executive Officer, said:
"LSL's performance during 2020 is testament to the underlying strength of the Group. Over a number of years, the Board has implemented a simple but consistent strategy to secure the position of our traditional agency businesses whilst building steadily our presence in complementary sectors. The value of this carefully controlled diversification is highlighted by the performance of our Financial Services Division, which contributed significantly to our robust performance.
 
In addition, our ability to respond rapidly and in detail to changing market conditions has meant that our response to the outbreak was decisive and effective.
 
This could not have been achieved without a tremendous effort from colleagues working in all parts of the Group.  Their commitment, flexibility and positivity highlights how they remain our greatest asset, and I would like to thank them for their support. Their health and well-being, and that of our customers, will remain my highest priority. 
 
Looking ahead, it is impossible to plot the future course of the virus or its impact on the economy or the housing market. We remain alert to the risk of more disruption, and will again take decisive action should it occur. Nevertheless, our performance so far in 2020 also illustrates the underlying strength of our business, and the potential it has. I continue to believe LSL has an exciting long term future."
 
 
For further information, please contact:
 




David Stewart, Group Chief Executive Officer


 




Adam Castleton, Group Chief Financial Officer 


 




LSL Property Services plc       


0207 382 0360 




 


 




Helen Tarbet
Simon Compton


07872 604453
07979 497324




Buchanan


0207 466 5000




        
 
Notes:
1.     Group Underlying Operating Profit is before exceptional costs, contingent consideration, amortisation of intangible assets and share-based payments
2.     Gearing is defined as Net Bank Debt divided by Group Adjusted EBITDA (excluding the impact of IFRS 16) 
3.     This is an amendment to the information included in the Directors' Remuneration Report which will be presented to Shareholders for approval at the forthcoming AGM
                                                                                  
Notes on LSL
LSL is a leading provider of residential property services in three key markets: financial services, estate agency and surveying and valuation services. Services include: residential sales, lettings, land and new homes, surveying, conveyancing support, and mortgage and non-investment insurance brokerage and intermediary network services.  Services to mortgage lenders include: valuations and panel management services, and asset management and property management services. For further information, please visit LSL's website: lslps.co.uk
 
Forward Looking Statement
This announcement contains certain statements that are forward-looking statements. They appear in a number of places throughout this update 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 update 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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