TIDMLSL
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.GBP104m (H1
2022: GBP160.9m).
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.GBP3.5m,
broadly in line with our expectations (H1 2022: GBP14.2m).
At 30 June 2023, Net Cash was GBP36.0m (31 December 2022: Net
Cash GBP40.1m, H1 2022: GBP30.7m), 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
Helen Tarbet
Simon Compton
George Beale
Buchanan 0207 466 5000 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
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