TIDMLSL
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 GBP110m of a cost base of c.GBP125m supporting the
Estate Agency Division with the largest reduction taking place
immediately. This is in addition to cost reductions of c.GBP30m 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 GBP6m in 2023 and a
further GBP7m in future periods, together with exceptional non-cash
balance sheet items of circa GBP6m. 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
Helen Tarbet
Simon Compton
George Beale
Buchanan 0207 466 5000 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
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