25 April 2024

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

FULL YEAR RESULTS TO 31 DECEMBER 2023

COMPLETION OF MAJOR TRANSFORMATION PROGRAMMES IN 2023

MOMENTUM BUILDING

LSL today reports its results for the 12 months ended 31 December 2023.

The mortgage and housing markets were significantly disrupted in 2023, impacting the financial performance of the Group. However, following a positive final quarter of 2023, the preliminary results are slightly ahead of expectations. Momentum has continued to build further in 2024, particularly in our Surveying & Valuation Division. Over the first quarter, Underlying Operating Profit was materially above the same period in 2023, reflecting the benefits of the Group's transformation programme completed in 2023 as well as improving market conditions.

The continued strong performance since our recent trading update on 6 March has reinforced the Board's confidence, and our expectations for full year Underlying Operating Profit have increased again.

Net Cash was £35.0m at the year end with the final dividend maintained at 7.4p per share, and the Board today announces a Share Buy Back programme, following a review of capital structure and capital allocation policies. An initial £7m tranche will commence imminently.

David Stewart, Group Chief Executive commented:

"2023 marked a period of significant progress in our transformation to a higher margin, less capital-intensive business that will perform more consistently through market cycles. Against the backdrop of very challenging market conditions, we have simplified and restructured our Financial Services and Estate Agency businesses. Both are now focused on business-to-business services with a significantly lower cost base and the potential for higher free cash flow generation. 

"Following this significant restructuring, LSL is now a more streamlined, agile Group comprising three market leading businesses with high return and organic growth opportunities that are well positioned to capitalise from the recent recovery in the housing and mortgage markets. Our focus is on maximising the performance of these businesses to deliver value to shareholders.

"I would also like to take the opportunity to give both my personal thanks and those of the rest of my colleagues to Simon Embley, who has decided to step down from the Board on 1 May. Simon's contribution to LSL has been extraordinary, from its beginning in 2004 to the present day. I am delighted that we will continue to work closely with him as he focuses on the growth plans of our joint venture, Pivotal Growth, which has made substantial progress over the past year."

STRATEGIC HIGHLIGHTS

Following the successful completion of our restructuring and transformation programmes, LSL is now a much simpler Group, and is expected to deliver higher operating margins, and more consistent earnings through market cycles.

·    Conversion of entire owned estate agency network to franchisees. LSL is now one of the UK's leading estate agency franchise businesses, supplying services to 308 territories  

·    The sale of our four direct-to-consumer (B2C) financial service advice businesses was completed in April 2023 to Pivotal Growth, our joint venture with Pollen Street Capital. LSL's Financial Services core activities are now focused on business-to-business (B2B) services, while retaining the opportunity to capitalise on B2C opportunities through our equity share in Pivotal Growth

·    In August 2023, we announced the acquisition of TenetLime mortgage network, with completion taking place on 2 February 2024, following FCA approval and the successful migration and onboarding of over 150 network firms with over 250 advisers. The acquisition will be earnings enhancing in 2024 with the current financial performance in line with our targets

·    Disposal of Marsh & Parsons, our London Estate Agency brand, which did not fit into our overall franchising strategy. Final consideration was £26.1m at an attractive multiple

·    Completion of these projects means that the Group's annualised cost base has been reduced by £140 million representing 50% savings on an annualised basis

OTHER HIGHLIGHTS

·    Recruitment of a new Chair is well advanced, and that of a new Senior Independent Director is also well underway. We will provide a further update in due course

·    Following the expansion of Pivotal Growth, Simon Embley will not seek re-election at the upcoming AGM and will step down from the Board on 1 May 2024 to focus on executing Pivotal's growth plans

·    Capital structure and capital allocation policy reviewed. Small net cash position to be maintained. Capital to be deployed at an appropriate risk adjusted margin above our Weighted Average Cost of Capital (WACC): currently 12%. Excess capital to be returned to shareholders

·    Share Buy Back programme announced today, with initial £7m tranche. Commencement of programme is imminent

·    Full year dividend of 11.4p (2022: 11.4p), with Final dividend maintained at 7.4p, reflecting strong balance sheet and Board's confidence in prospects

·    Agreed new RCF in February 2023 of £60m with existing lenders, extending maturity to May 2026

FINANCIAL HIGHLIGHTS

The Group's strategic transformation means our 2023 financial results are less directly comparable to 2022. Our key financial highlights are:

Notes:

1          Stated on basis of continuing operations unless otherwise stated. Refer to notes 2 and 6 to the Financial Statements

2          Refer to note 36 to the Financial Statements for details regarding the restatement

3          Group (and Divisional) Underlying Operating Profit is stated before exceptional items, contingent consideration assets & liabilities, amortisation of intangible assets and share-based payments. Refer to note 5 to the Financial Statements for reconciliation of Group and Divisional Underlying Operating Profit to statutory operating profit/(loss) for continuing, discontinued and total operations

4          Following the conversion of the entire owned estate agency network to franchises in H1 2023, the previously owned network was classified as a discontinued operation and is now presented as such in the Financial Statements. Refer to notes 2 and 6 to the Financial Statements

5          Refer to note 12 to the Financial Statements for the calculation

6          Refer to note 35 to the Financial Statements for the calculation 

·    Group Revenue from continuing operations¹ was £144.4m (2022: £217.5m). After adjusting for disposals and discontinued operations in Estate Agency¹, revenue was around 10%² below prior year in a market in which purchase and remortgage lending was down 29% and house sales which were 19% lower

·    Group Revenue including discontinued operations^1,3 in Estate Agency Franchise, was £176.8m (2022: £321.7m)

·      Group Operating Profit was £3.7m (2022: loss of £21.7m)

·    Group Underlying Operating Profit from total operations^1,4 was £9.3m (2022: £35.8m), slightly ahead of expectations, with disrupted markets particularly impacting results in the Surveying & Valuations Division

·    Group Underlying Operating Profit from continued operations^1,4 was £10.3m (2022: £29.9m)

·    Net Exceptional costs⁵ of £4.5m (2022: net costs £47.6m)

·    Net Cash⁶ of £35.0m at 31 December 2023 (31 December 2022: £40.1m)

DIVISIONAL PERFORMANCE

Financial Services Division

·    Financial Services division transformed to focus exclusively on business-to-business services with the disposal of four businesses to Pivotal Growth, reducing divisional costs by around £30m annualised

·    Financial Services Network business traded resiliently in difficult market conditions, reporting Underlying Operating Profit⁴ of £10.0m (2022: £15.5m)

·    Increased market share of the UK purchase and remortgage market⁷ of 10.7% (2022: 10.5%)

·    LSL advisers responded effectively to changes in the mortgage market increasing product transfer mortgage completions by 41% resulting in a substantially increased share of the product transfer market of 7.4% (2022: 6.4%)

·      Resilient protection sales - Network protection revenue increased by 2% to £11.6m (2022: £11.3m)

·    The number of Network firms remained broadly flat at 1,000 on 31 December 2023 (31 December 2022: 1,005). Network firms remained cautious on adviser levels due to challenging market conditions and adviser numbers reduced to 2,661 as at 31 December 2023 (31 December 2022: 2,867)

Surveying & Valuation Division

·    Surveying & Valuation performance was impacted by significant reductions in valuation instructions across the market and as a result Underlying Operating Profit⁴ fell to £5.4m (2022: £20.4m)

·    Market share of valuation instructions increased slightly to 38% (2022: 37%)

·    Early signs of market recovery in Q4 2023, with significant improvement in 2024

·    Contract with Lloyd's Banking Group extended to September 2028, underpinning the Group's leading market position. Furthermore, we also secured an improvement in terms and allocation with another major lender

·    Retained contracts with all lending customers with no loss in allocations

·    Self-help cost measures were taken in 2023, including a reduction in the number of employed surveyors, achieved through voluntary redundancy. Our principal focus was to retain sufficient capacity to meet the requirements of more normal market conditions, and the business carried material excess costs in 2023, over the level of demand. All capacity is now fully deployed in Q1 2024, as the market recovered

·    Surveying profit in Q1 2024 was greater than the whole of 2023 as we benefited from recovering markets, improved contract terms and renewals, as well as the decision to retain excess capacity during 2023

Estate Agency Franchising Division

·    Estate Agency Franchising Division transformation following the conversion of owned branch network to Franchisees and disposal of Marsh & Parsons leading to divisional annualised cost reductions of c.£110m and thereby reducing earnings volatility

·    Benefits of new business model were reflected in an Underlying Operating Profit⁴ of around £5m in the 8-month period since the franchising change in May 2023, with H2 operating margins around 25%. This compared to a loss of around £0.3m for the first 4 months of the year under the old business model. Total Underlying Operating Profit⁴ for 2023 of £4.7m was delivered during a period when there was a market-wide reduction of 19% in house sales, to the lowest level for 11 years

·    In the first month of 2024, the Estate Agency Division reported a profit for only the second time in its history, reflecting the more consistent earnings of the franchise model

·    The number of properties under management increased by 1% to 37,502 (2022: 37,177) demonstrating the resilience of lettings through market cycles  

Pivotal Growth JV

·    Pivotal Growth now has over 400 advisers, making it one of the largest mortgage and protection brokers in the UK, giving it critical mass to leverage its scale to attract deals and drive revenue synergies

·    Acquisition during 2023 of four direct-to-consumer financial services advice businesses from LSL Group for initial consideration of £9.3m, and further contingent consideration payable to LSL in 2025 based upon 7x 2024 EBITDA performance

·    These acquisitions further increased Pivotal Growth's scale, expertise and capability serving New Build, Estate Agency, and General Insurance customers

·    Three further acquisitions have completed so far during 2024 including the acquisition of John Charcol with 150 mortgage and protection advisers. The acquisitions were funded from Pivotal cash reserves

·    Pivotal Growth's financial performance has steadily improved as it has increased in scale and moved out of its establishment phase. Pivotal is expected to be profitable in 2024

ECONOMIC AND MARKET ENVIRONMENT

·    Conditions in both the mortgage and housing markets were challenging, with disruption to normal lender behaviour and consumer confidence impacted by continuing high inflation and interest rate rises

·    The mortgage lending market⁷ remained suppressed, with total lending 9% less than 2022.  Purchase lending fell by 31% compared to 2022, and remortgage lending decreased by 25% whilst product transfer lending increased by 21% triggered by the sharp increase in interest rates impacting mortgage affordability

·    Total lending arranged by LSL was 9% lower than 2022, with an increased share in each of the purchase, remortgage and product transfer markets, and more heavily weighted than previously to product transfers. LSL's share of the total purchase and remortgage market increased to 10.7%⁷ (2022: 10.5%). LSL's market share of Product Transfers increased to 7.4% (2022: 6.4%)

·    Bank of England mortgage approvals⁸ were 30% lower than 2022. The more specialist markets of Buy-to-Let and Equity release were particularly affected by higher interest rates. There was also an increase in the proportion of house purchases by cash buyers. These factors together with the shift to product transfer business significantly affected our Surveying & Valuation business and to a lesser extent our Financial Services network businesses. Total jobs performed by the Surveying & Valuation Division fell by 26%, less than the market as a whole, reflecting a small increase in market share⁷

·    Total UK HMRC recorded residential transactions⁹ were 19% lower in 2023 at 1,019k (2022: 1,258k)

CURRENT TRADING AND OUTLOOK

2024 has started strongly with improving sentiment and lower mortgage rates driving more activity across our core markets. We have seen an increase in mortgage approvals as well as housing transactions and the start of a normalisation in product mix in our mortgage business. These conditions have particularly benefited our Surveying & Valuation business, where there has been a very substantial increase in activity and profits.

It was against this background of improving activity and Group trading that we issued a trading update on 6 March, since which time trading has remained ahead of expectations. At the end of Q1 2024, Group Underlying Operating Profit was materially ahead of the same period in 2023. This improved trading reflects better market conditions as well as the benefits of the new Estate Agency franchise model, improved lender contracts, and our decision to retain surplus capacity throughout the second half of 2023 in our Surveying & Valuation business.

Although we retain a degree of caution, inflation data still suggests that interest rates will reduce in 2024, which would help support our markets. This, together with the strong performance since our recent trading update on 6 March, reinforces the Board's confidence, and our expectations for full year Underlying Operating Profit have increased further.

Notes:

1          Following the conversion of the entire owned estate agency network to franchises in H1 2023, the previously owned network was classified as a discontinued operation and is now presented as such in the Financial Statements. Refer to notes 2 and 6 to the Financial Statements

2          Revenue: £138.1m in 2023 with statutory revenue of £144.4m less £6.2m revenue from businesses disposed in 2023, as compared to £154.1m in 2022 with statutory revenue of £217.5m less £63.4m revenue from businesses disposed in 2023

3          Refer to note 4 of the Financial Statements

4          Group (and Divisional) Underlying Operating Profit is stated before exceptional items, contingent consideration assets & liabilities, amortisation of intangible assets and share-based payments. Refer to note 5 to the Financial Statements for reconciliation of Group and Divisional Underlying Operating Profit to statutory operating (loss)/profit for continuing, discontinued and total operations

5          Refer to note 9 to the Financial Statements

6          Refer to note 35 to the Financial Statements for the calculation 

7          Mortgage lending excluding product transfers - New mortgage lending by purpose of loan, UK (BOE) - Table MM23 (Jan 2024)

8          Number of Approvals for lending secured on dwellings, BoE via UK Finance (Jan 2024)

9          Number of residential property transaction completions with value £40,000 or above, HMRC (Jan 2024)

For further information, please contact:

Notes on LSL

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

Its c.2,900 advisers represent around 11% 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 in 308 territories.

LSL is also one of the UK's largest providers of surveying and valuation services, supplying seven out of the eight 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 

GROUP CHIEF EXECUTIVE'S REVIEW

2023 was a year of significant progress, with the Group's transformation to a structurally higher margin, lower capital intensity business now complete. We have restructured both our Financial Services Network and our Estate Agency Franchising Division, which are now exclusively focused on business-to-business services, with a materially lower cost base and the potential for higher free cash flow generation. As a result of the work we have done, LSL is now well-positioned to drive greater shareholder value and to perform more consistently through market cycles, supported by a strong balance sheet.

With the benefit of the restructuring and transformation programmes complete, the Board and management are focused now on maximising the operational potential in the business and ensuring that this potential is appropriately reflected in the wider perceptions of LSL. To that end, the Board also remains actively engaged with its shareholders with the common aim to drive shareholder value, including return on investment and capital management.

Our strategic progress has been delivered against a difficult market backdrop. Rising interest rates and higher mortgage costs significantly impacted the size and product mix in the mortgage market whilst reducing housing transactions by 19%, impacting the financial performance in each of our divisions. We ended the year with some early signs of green shoots in the mortgage and housing markets as mortgage rates started to come down. Our full year results are slightly ahead of the Board's previous expectations, and I am pleased to report that 2024 has started strongly, with performance significantly ahead of prior year.

Our transformation programme has delivered material cost savings and reduced our cost base by 50% on an annualised basis. Combined with a new bank facility, disposal proceeds and enhanced financial flexibility due to the Group's strategic progress, we have strengthened our balance sheet further. We ended the year with £35.0m of Net Cash¹.

Following the completion of our restructuring programme, the Board has reviewed the Group's capital structure and capital allocation policies. Going forward the Board expects the Group's strong profit to cash conversion dynamics it has historically displayed to continue, and the Group to have only small working capital requirements. 

With a clear prioritisation of organic growth in our existing three Divisions, the Group only needs to hold a small net cash position, of up to £10m. Cash above this level after dividends and capex requirements, expected to be £3-5m per annum, will be considered excess and returned to shareholders. 

Capital allocation will prioritise organic growth measured against a risk adjusted return above the Group's cost of capital. While not a priority, the Board will continue to assess inorganic growth, using the same criteria of risk adjusted returns above the Group's cost of capital.

Given this framework, the Board has concluded that LSL currently has £7m of excess capital at this time, reflecting cash requirements for Pivotal, contingent consideration for TenetLime, and Estate Agency franchise restructuring costs as previously disclosed. The Group plans to return this through a Share Buy Back Programme which it intends to commence imminently.

I would like to thank all my colleagues for their continued hard work and exceptional support in the transformation of the Group.

Review of 2023 Performance

The Group's performance was naturally affected by the headwinds that impacted the mortgage and housing markets, whilst the significant transformation activity completed in the year does mean that our 2023 financial results are less directly comparable to 2022. 

Group Revenue from continuing operations² was £144.4m (2022: £217.5m). After adjusting for disposals and discontinued operations in Estate Agency², revenue was 10%³ below prior year in a new lending market that was 29% lower by value and a housing market down 19%.

Group Underlying Operating Profit from continuing operations^2,4 was £10.3m (2022: £29.9m) and Group Underlying Operating Profit from total operations^2,4 was £9.3m (2022: £35.8m). These figures include costs carried in Surveying & Valuation above demand, losses in businesses disposed of in the period and one-off cost-of-living payments for lower-paid staff.

Financial Services Division

Our PRIMIS network has maintained its leading position in the provision of services to independent mortgage brokers. It is in more challenging market conditions that the advantages of the small, independent, client-focused broker business model is best demonstrated, and in 2023 this was reflected in our advisers' strong market share.

The rise in mortgage rates has resulted in a market wide increase in lower margin product transfer cases, as lenders remain conservative with respect to new borrowers, and this has naturally had some impact on revenue and profits. Our members responded positively to these market developments, with the value of product transfer cases increasing by 41%. Total LSL mortgage lending reduced to £41.7bn (2022: £45.6bn).

We increased our share of the purchase and remortgage and of the product transfer markets, with a record share of the purchase and remortgage (10.7%⁵ up from 10.5%) and the product transfer markets (7.4% up from 6.4%). Protection performance was also robust, with Network protection revenue increasing by 2%. This performance is reflected in Financial Services Network revenue which fell by just 5.2% to £39.5m (2022: £41.6m).

Network Underlying Operating Profit was £10.0m (2022: £15.5m) reflecting the impact on revenue of market dynamics as well as increased costs including those arising from emerging regulatory requirements, inflationary salary increases targeted at lower paid employees and executive team restructuring.

Financial Services Other reported a loss of £3.0m (2022: loss of £2.6m) which was in-line with our expectations, as we continued to refocus our Mortgage Gym and DLPS technology businesses towards our core Network business, absorbing their operations and commercial focus into the Network business. To reflect this dynamic, from 1 January 2024 we will report results in our Financial Services Division in just two business lines: our core Financial Services Network business comprising PRIMIS and TMA mortgage club, and our share of profit after tax of Pivotal Growth.

Total Financial Services Division Underlying Operating Profit⁴ was £7.0m (2022: £12.8m). On a statutory basis, operating profit was £5.0m (2022: loss of £7.2m).

Our PRIMIS network retains a leading market position which at the start of 2024 was boosted by the completion of the TenetLime acquisition. Our new senior management team is focused on leveraging this strong member base to deliver organic growth whilst taking advantage of improving market conditions in 2024.

Surveying & Valuation Division

Our Surveying & Valuation business has performed very strongly in recent years, increasing market share, and in 2021 and 2022, it returned to operating margins above 20%. I believe it to be the leading business in its sector and we were pleased to confirm recently that we have extended our contract with Lloyds Banking Group until September 2028, further enhancing our leading market position.

The mortgage market in 2023 was extremely challenging for all valuation businesses. The significant increase in product transfer cases, where no valuation is needed, created a major headwind as did reduced activity in the purchase market as well as specialist equity release and buy-to-let sectors, where both supply and demand were reduced by the rapid rise in interest rates. This resulted in surplus capacity and a very competitive market for new instructions, and it is testament to the quality of service provided by our team that we increased further our share of valuations instructions.

Underlying Operating Profit⁴ was £5.4m (2022: £20.4m) reflecting reduced activity in our markets and our decision to retain capacity to support a more normal level of activity.

Self-help cost measures were taken in 2023, including a reduction in the number of employed surveyors, achieved through voluntary redundancy. However, our principal focus was to retain sufficient capacity to meet the requirements of more normal market conditions, and the business carried material excess costs in 2023, over the level of demand. We have been pleased to fully deploy the excess capacity in quarter one 2024, with the market recovering earlier than expected.

Surveying profit in quarter one 2024 was greater than for the whole of 2023 as we benefited from recovering markets, contract renewals, and the decision to retain excess capacity during 2023, with strong performance continuing in April.

The much smaller overall market resulted in a reduction in Surveying & Valuation revenue to £67.8m (2022: £93.2m). On a statutory basis, operating profit was £2.0m (2022: £20.8m).

We have identified medium-term opportunities to increase our diversification and reduce reliance on lender valuations and our exposure to mortgage market cycles, with the development of new revenue streams providing data services to lenders and other clients and by growing revenue from direct-to-consumer ("D2C") surveys. We have seen good growth in D2C in recent years, with revenues from this source having doubled between 2019 and 2022. Despite the more challenging conditions, 2023 revenue of £3.6m was unchanged from 2022.

Estate Agency Franchising Division

Before this year, most of the Group's cost base was incurred in operating a large network of owned estate agency branches. This meant that the Group was significantly exposed to changes in the number of housing transactions, whilst the capital required to increase the number of branches represented a barrier to growth. Furthermore, any expansion in the branch network would have increased our fixed cost base and consequent exposure to housing market cycles further.

After an extensive strategic review, the Board decided to transform our estate agency operations, moving from a predominantly owned model to one entirely focused on the provision of franchise services. After an extensive programme of work, we announced on 4 May the conversion of our owned network of 183 branches to franchisees. This announcement followed the disposal in January of our London estate agency business, Marsh & Parsons, for total consideration of £26.1m⁶ which did not form part of our overall franchise strategy.

I am pleased to report that this transformation programme was executed smoothly, with the financial performance since the change being ahead of our expectations. I am also clear that it was a significantly more profitable business model under the market conditions that emerged in 2023 than the previous owned model.

On a reported continuing basis, Estate Agency Franchising business revenue was £24.9m (2022: £42.6m), primarily reflecting the disposal of Marsh & Parsons, and the conversion of owned branches to franchises.

The benefits of the new business model were reflected in an Underlying Operating Profit⁴ of around £5m in the eight-month period since the franchising change in May 2023, with operating margins in H2 above 25%. This compares to a loss of around £0.3m for the first four months of the year under the old business model. Total Underlying Operating Profit⁴ for 2023 of £4.7m was delivered during a period when there was a market-wide reduction of 19% in house sales, to the lowest level for 11 years. The greater consistency of the franchising model was demonstrated further at the start of 2024 when the Division reported a profit in January for only the second time in its history.

Estate Agency and Franchising business revenue including discontinued operations was £57.2m (2022: £146.8m) and Underlying Operating Profit from total Estate Agency operations was £4.7m (2022: £9.9m profit). On a statutory basis, operating loss from total operations was £41.0m (2022: loss of £61.2m).

To reflect the change in the structure of the Group, from 1 January 2024, our asset management business which provides repossession services to corporate clients and is currently reported within the Estate Agency Division, will be reported within the Surveying & Valuation Division, as the key commercial relationships for this business are with major lenders. The profit generated by this business was £1.3m in 2023.

Strategic priorities and development

The Group has made substantial progress implementing its strategy to simplify the business, reduce earnings volatility, and focus investment in high growth areas. 

Following this restructuring the Group now has a strong platform across all three of its divisions to further develop strategic priorities for each business and leverage our market leading positions as lending and housing activity recovers from a difficult market in 2023.

Estate Agency Franchising model

Perhaps the most significant development came in May 2023 when we confirmed our plans to convert our entire owned Estate Agency network to a franchising model, and in doing so LSL has become one of the largest providers of estate agency franchise services in the UK. The execution of the change has gone well, and we are ahead of the plans we set for reducing costs and increasing margin.

With the completion of the conversion of our Estate Agency business to a franchise model during 2023, we are now focused on further enhancing our franchising expertise to bring on new partners and develop our services for franchisees.

Prior to the announcement of our franchising programme, in January 2023, we announced the sale of our London estate agency business, Marsh & Parsons, for total consideration of £26.1m⁶ at an attractive multiple. We did not consider Marsh & Parsons was suitable for our franchising operation.

Focus on B2B in Financial Services

The first half of 2023 also saw us take the last steps to focus financial services activity exclusively on business-to-business services, through our PRIMIS network and TMA mortgage club. The disposals announced in April 2023 of our mortgage, protection, and general insurance brokerage firms, Embrace and First2Protect, to Pivotal Growth, followed on from transactions in January 2023 when we similarly sold our new build focused brokerage businesses, RSC and Group First, to Pivotal. These transactions simplify our Financial Services Division, reducing costs and reducing earnings volatility, whilst retaining LSL's capability to capitalise on B2C opportunities through our equity share in Pivotal.

Increasing scale in the Financial Services Network

In August, we took the opportunity to add further scale to our PRIMIS Network business, announcing the acquisition of the TenetLime mortgage and protection network. This deal, which adds more than 250 advisers across over 150 firms, completed on 2 February 2024, building on our share of over 10% of the UK house purchase and remortgage markets. The transaction will be earnings enhancing in 2024. 

We have already successfully carried out the migration and onboarding of the firms, and the current financial performance is in line with our plan. We remain on track to achieve our investment hurdle target for this acquisition.

The consideration payable is expected to be up to £11.6m consisting of an initial payment of £5.7m, a further payment of up to £4.6m, calculated by reference to the number and turnover of appointed representative firms 12 months following completion and an expected payment of £1.4m for assets which form part of TenetLime's regulatory capital.

Investment in management

Our Financial Services Division has welcomed a new managing director bringing significant experience in the mortgage network market as well as a number of other senior executives. These appointments follow the retirement of long-standing colleagues, and I would like to thank them for their contribution to LSL.

Surveying & Valuation contract renewals

I am delighted to report that our Surveying & Valuation Division extended its contract to supply surveying and valuation services to Lloyds Banking Group to September 2028, underpinning our leading market position. We also secured an improvement in terms and allocation with another major lender as well as contracts with a number of other smaller players. We continue to explore new business opportunities in data and direct-to-consumer services.

Pivotal Growth Joint Venture

It is now three years since we launched Pivotal Growth, our joint venture with Pollen Street Capital (PSC), established to execute a buy-and-build strategy in the mortgage and protection intermediary markets. Working with Pollen Street Capital allows the Group to cap its maximum investment whilst benefiting from Pollen Street's considerable experience of executing similar strategies in related markets. Our joint aim is to build the business together with a view to an exit event over a three-to-six-year period after launch. All major strategic decisions require agreement by both LSL and PSC.

The advantages of a buy-and-build strategy include economies of scale, synergies between acquired companies, deployment of integrated technology and the potential for a larger and scalable business to benefit from enhanced multiples on exit.

Following a slower than expected start, as Pivotal maintained a disciplined approach to deal price, it has acquired 12 businesses and currently has over 400 advisers, making it one of the largest mortgage brokers in the UK. This includes three acquisitions made in 2024, including that of John Charcol, a firm with 150 advisers. Pivotal's scale improves its ability to win new distribution agreements, drive synergies and make it a more compelling proposition for future acquisition partners. The acquisitions made to date have integrated and synergies are being delivered.

We have invested £11m in Pivotal since 2021 and we estimate that we could make further investment of up to £15m over the next three years by way of equity and loan notes, subject to the timing and size of deal flows and the introduction of any external debt.

We continue to closely monitor Pivotal's performance to maximise returns for shareholders and it remains on track to deliver returns comfortably ahead of the Group's WACC.

In addition, Pivotal offers further potential opportunities for our PRIMIS mortgage network, including developing services for larger brokers and assisting other PRIMIS members to capitalise on additional new business opportunities, for example in some specialist mortgage sectors.

Pivotal's financial performance has steadily improved as it has increased in scale and moved out of its establishment phase. Pivotal is expected to be profitable in 2024. 

Capital structure and capital allocation

An Investment Committee is in place to review investment proposals and the performance of previous investments against the original business cases and Group hurdle rate, and to identify any learnings for future capital allocation decisions. The work of the Investment Committee allows the Board to assess the Group's projected near and medium-term capital requirements. This facilitates an appropriate capital structure and capital allocation policy, taking into account economic conditions, the Group's improved resilience to market cycles and organic and inorganic opportunities.

Following the completion of the major strategic programmes by the business in 2023, the Investment Committee has reviewed the Group's capital structure and capital allocation policies.

The Board has held a cash balance for some time given recent uncertain markets and to provide financial flexibility to take advantage of any material inorganic opportunities. After reviewing its cash flow requirements, and the high cash generating nature of our business model, the Board has concluded the Group requires up to £10m of net cash.

The Board prioritises organic growth investments that deliver risk adjusted returns above Group cost of capital and paying an attractive dividend to shareholders. Our end markets are large, and the Board see significant attractive organic growth opportunities over the medium-term. While not a priority today, inorganic investments are assessed against the same criteria. The Group's WACC is 12% (post tax). Today, the Board's focus is on optimising returns in our core businesses and driving organic growth in our large addressable markets. This will require modest capital expenditure that will be funded by free cash flow generation. Other cash requirements such as contingent consideration for TenetLime, Estate Agency restructuring costs, and further investment in Pivotal Growth, will also be funded by free cash flow generation. Any excess capital will be distributed to shareholders.

Capital expenditure and investments

We remain committed to investing in the business to support growth. During the year, we deployed capital in the Divisional restructuring and transformation programmes, capital expenditure which was focused on capability and technology to support future organic growth and the settlement of contingent consideration in RSC ahead of its disposal and further investment in Pivotal Growth. Following the year end we invested an initial consideration of £5.7m for the acquisition of TenetLime. 

The new Group operating model is less capital intensive, which is reflected in lower capital expenditure requirements, typically expected to be in the region of £3-5m per annum. The Group also expects to invest up to £15m in Pivotal Growth over the next three years. In addition, the Group expects one-off cash investments of up to £6m for further contingent consideration on TenetLime and up to £7m for restructuring costs relating to Estate Agency franchising, as previously disclosed.

Dividend

The Board has reviewed the final dividend, considering the Group's policy to pay out 30% of Group Underlying Operating Profit after finance and normalised tax charges, so that dividend cover is held at approximately three times earnings over the business cycle. This policy was designed to provide clarity to shareholders and ensure the Group retained a strong balance sheet for all market conditions.

The strategic progress made by the Group in 2023 has underpinned the Board's confidence in the future. We have secured material cost savings and now operate a higher margin and lower capital-intensive business following the restructuring in Financial Services and Estate Agency. The Group balance sheet is robust with Net Cash¹ of £35.0m at 31 December 2023, boosted by disposal proceeds. This strong cash position, the anticipated significant increase in profit in 2024 and the Board's confidence in the Group's prospects, allows the Board to declare a final dividend of 7.4 pence per share, unchanged on last year, making a total dividend of 11.4 pence per share.

The ex-dividend date for the final dividend is 9 May 2024, with a record date of 10 May 2024 and a payment date of 28 June 2024. Shareholders can elect to reinvest their cash dividend and purchase additional shares in LSL through a dividend reinvestment plan. The election date is 24 May 2024.

Living Responsibly and ESG

'Living Responsibly' is at the heart of our business and is how we deliver our ESG programme. I am clear that LSL's success needs to be measured not only in the profits we generate, but the impact we have on the communities in which we operate.

In our ESG and our Living Responsibly reports published in April 2023, we set out some of the steps we have taken to reduce our environmental impact, help ensure LSL is a supportive and inclusive workplace, and provide support to good causes. A further updated report will be published shortly. In this update, we will describe the very significant progress made to embed "Living Responsibly" throughout the Group. In the past year, this included establishing "LSL Voices", a colleague driven initiative to provide help and support to staff from diverse backgrounds. I am also pleased to report that all colleagues receive at least the Real Living Wage. We have continued to focus on volunteering and fund-raising for good causes via our Communities Forum, whilst progress against our environmental targets will also be set out in our Annual Report & Accounts. 

I am very grateful for the incredible support provided by colleagues, not only to our Living Responsibly work but also in delivering such significant transformation during what has been a highly challenging period. Their hard work and commitment have put LSL in a much stronger position to take advantage of future opportunities.

CURRENT TRADING AND OUTLOOK

2024 has started strongly with improving sentiment and lower mortgage rates driving more activity across our core markets. We have seen an increase in mortgage approvals as well as housing transactions and the start of a normalisation in product mix in our mortgage business. These conditions have particularly benefited our Surveying & Valuation business, where there has been a very substantial increase in activity and profits.

It was against this background of improving activity and Group trading that we issued a trading update on 6 March, since which time trading has remained ahead of expectations. At the end of Q1 2024, Group Underlying Operating Profit was materially ahead of the same period in 2023. This improved trading reflects better market conditions as well as the benefits of the new Estate Agency franchise model, improved lender contracts, and our decision to retain surplus capacity throughout the second half of 2023 in our Surveying & Valuation business.

Although we retain a degree of caution, inflation data still suggests that interest rates will reduce in 2024, which would help support our markets. This, together with the strong performance since our recent trading update on 6 March, reinforces the Board's confidence, and our expectations for full year Underlying Operating Profit have increased further.

David Stewart

Group Chief Executive Officer

24 April 2024

Notes:

1          Refer to note 35 to the Financial Statements for the calculation

2          Following the conversion of the entire owned estate agency network to franchises in H1 2023, the previously owned network was classified as a discontinued operation and is now presented as such in the Financial Statements. Refer to notes 2 and 6 to the Financial Statements

3          Revenue: £138.1m in 2023 with statutory revenue of £144.4m less £6.2m revenue from businesses disposed in 2023, as compared to £154.1m in 2022 with statutory revenue of £217.5m less £63.4m revenue from businesses disposed in 2023

4          Group (and Divisional) Underlying Operating Profit is before exceptional items, contingent consideration assets & liabilities, amortisation of intangible assets and share-based payments. Refer to note 5 to the Financial Statements for reconciliation of Group and Divisional Underlying Operating Profit to statutory operating (loss)/profit for continuing, discontinued and total operations

5          Mortgage lending excluding product transfers - New mortgage lending by purpose of loan, UK (BOE) - Table MM23 (Jan 2024)

6          Refer to note 9 to the Financial Statements

Notes:

1          Refer to note 36 to the Financial Statements

2          Following the conversion of the entire owned estate agency network to franchises in H1 2023, the previously owned network was classified as a discontinued operation and is now presented as such in the Financial Statements. Refer to notes 2 and 6 to the Financial Statements

3          Group (and Divisional) Underlying Operating Profit is before exceptional items, contingent consideration assets & liabilities, amortisation of intangible assets and share-based payments. Refer to note 5 to the Financial Statements for reconciliation of Group and Divisional Underlying Operating Profit to statutory operating (loss)/profit for continuing, discontinued and total operations

FINANCIAL REVIEW

Income Statement

Group Revenue from continuing operations¹ was £144.4m (2022: £217.5m). After adjusting for disposals and discontinued operations in Estate Agency, revenue was 10%² below prior year in a housing market 19% lower and in a smaller lending market. Including discontinued operations in Estate Agency, revenue from total operations was £176.8m (2022: £321.7m), reflecting the previously owned network revenues.

Group Underlying Operating Profit from total operations^1,3 of £9.3m (2022: £35.8m) includes excess capacity costs carried in Surveying & Valuation, £1m from losses in businesses disposed of in the period and a one-off cost-of-living payment totalling £0.9m for lower-paid staff. Group Underlying Operating Profit from continuing operations was £10.3m (2022: £29.9m).

Group Operating Profit was £3.7m (2022: loss of £21.7m), a material improvement compared to the prior year which included an exceptional impairment charge for goodwill and other intangibles of £47.2m. 

Adjusted operating expenditure⁴, comprises Employee costs, Other operating costs, and Depreciation and totalled £133.5m in 2023, 29% lower than prior year (2022: £188.4m), with the movement comprising the net effect of the following factors:

-      Disposal of businesses during the period

-      Reduction in depreciation due to the disposal of businesses during the period which led to the reclassification of IFRS 16 depreciation into Other Operating Expenses because of the franchising of the Estate Agency branch network

-      Reduced costs in Surveying  & Valuation through self-help measures and reduced variable costs

-       Increased costs in Financial Services including those arising from emerging regulatory requirements, inflationary salary increases targeted at lower paid employees and executive team restructuring

-       The amounts included for Estate Agency represent those for the expanded continuing franchising business

-      Central (unallocated) costs of £7.7m (2022: £7.3m) included staff restructure costs and increased audit fees

The Group exited 2023 with costs over 50% lower than 2022, reflecting an annualised total operations cost reduction of c.£140m.

Other (losses)/gains

Total other operating losses were £0.2m (2022: gains of £1.3m). This primarily reflected the movement in the fair value of units held in The Openwork Partnership LLP (loss of £0.3m, 2022: gain £0.7m), having been reassessed at 31 December 2023 as £0.4m (31 December 2022: £0.7m). The prior year also included external rental income of £0.7m, no longer applicable following the wholesale franchising of the Estate Agency branch network.

Share of losses from joint venture

Losses from our equity share of Pivotal Growth reduced to £0.4m (2022: £0.5m loss).

Share-based payments

The share-based payment credit of £0.2m in 2023 (2022: charge of £1.9m) comprises, a charge in the period of £3.0m for LTIP, SAYE and BAYE schemes granted in 2020 to 2023, offset by a credit of £3.2m reflecting lapses and adjustments for leavers largely as a result of the significant restructuring across the Group. The prior year included a higher charge of £1.9m, offset by lower lapse and leaver adjustments.

Amortisation of intangible assets⁵

The amortisation charge for 2023 was £2.3m (2022: £2.8m⁶), being amortisation of intangible software investment and franchise agreements. The year-on-year movement comprises a reduction in both lettings books and certain software intangibles as they have been fully amortised, partly offset by amortisation for the newly established franchise intangibles.

Exceptional items⁷

The exceptional gain of £9.3m (2022: £0.7m) relates primarily to the gain on disposal during the period of the Embrace and First2Protect businesses to Pivotal Growth of £9.0m. Consideration of £9.3m was received on completion of First2Protect, with contingent consideration to be received in 2025 estimated at £2.0m (undiscounted) for Embrace based upon 7x 2024 EBITDA performance. In addition, there was a £0.3m release in relation to the historic exceptional Surveying & Valuation IBNR PI Costs provision (2022: £0.7m).

Exceptional costs of £13.8m (2022: £48.3m), primarily related to restructuring activity and corporate transaction costs of £5.8m, a reduction in contingent consideration assets of £4.1m for businesses sold to Pivotal Growth, reflecting changes to estimates, the net loss on disposals of Group First, RSC and Marsh & Parsons of £1.7m and impairment of Financial Services intangible software assets of £2.2m. Prior year exceptional costs related principally to the outcome of the annual impairment review and prior year restatements, which led to non-cash goodwill and other intangibles impairment of £47.2m⁶.

Contingent consideration payable

There was £0.03m contingent consideration charge recognised in the period (2022: £0.7m), reflecting a small increase in DLPS liability based on revisions to forecasts, subsequently paid in February 2024. The credit to the income statement in 2022 of £0.7m related to the reduction of the contingent consideration liability for RSC and DLPS, based on revisions to profit forecasts.

Finance income increased to £2.8m (2022: £0.1m) resulting mainly from increased interest received on funds held on deposit of £1.5m in 2023 (2022: £0.1m), reflecting proactive management of funds across the Group to optimise in the higher interest rate environment, and the unwind of discounting on contingent consideration receivable balances as the differential in time to payment date reduces, with income of £1.0m (2022: £nil).

Finance costs amounted to £1.7m (2022: £2.1m) and related principally to the unwinding of discount on lease liabilities of £0.5m (2022: £1.0m) which reduced because of the disposal of Marsh & Parsons, commitment and non-utilisation fees on the revolving credit facility of £0.7m (2022: £1.0m) and £0.5m for the unwinding of discount on dilapidations provisions and a fair value adjustment to loans receivable (2022: £nil).

Profit before tax

Profit before tax was £4.9m (2022: loss before tax of £23.8m). The year-on-year movement is primarily due to the materially higher net exceptional cost in the prior period, and lower Group Underlying Operating Profit during 2023.

Taxation

The tax credit of £3.2m (2022: charge of £3.0m) represents an effective tax rate of 65.2% (2022: 12.7%), which is lower than the headline UK tax rate of 23.5% as a result of deferred tax balances written back on the disposal of investments in subsidiary undertakings, and non-taxable gains arising from those disposals. Deferred tax assets and liabilities are measured at 25.0% (2022: 25.0%), the tax rate that came into effect from 1 April 2023.

Discontinued operations¹ loss of £46.1m (net of tax) in relation to the previously owned Estate Agency branch network (2022: loss of £36.5m). The discontinued operations in Estate Agency Franchising contributed an Underlying Operating Loss of £1.0m during the period (2022: profit £6.0m) before incurring exceptional restructuring costs in relation to the conversion of the Estate Agency network to a franchise operation (£16.5m) and associated disposed goodwill (£38.1m), offset in part by the exceptional gain on recognition of intangible franchise agreements of £10.7m.

Earnings per Share⁸

Balance Sheet

Goodwill⁵

The carrying value of goodwill is £16.9m (31 December 2022: £55.0m⁶). Following the conversion of the entire owned Estate Agency network to franchises during the period, the goodwill associated with Your Move, Reeds Rains and LSLi owned branches (£38.1m) has been disposed and reduced to £nil. Goodwill previously included within held for sale assets of £15.3m was disposed as part of the sales of Marsh & Parsons (£10.6m), Group First (£3.6m) and RSC (£1.1m), which completed in January 2023.

Other intangible assets⁵

Other intangible assets of £21.5m at 31 December 2023 (31 December 2022: £14.7m⁶). New intangible franchise agreements of £10.7m were recognised during the period following the conversion of the entire owned Estate Agency network to franchises. The carrying value of all franchise agreements was £11.7m at 31 December 2023 (31 December 2022: £1.5m⁶). Total amortisation including discontinued operations of £2.7m was charged in the year, with £2.1m of new intangible software investment.

Intangibles disposed during the period as part of the restructuring across the Group came to £1.3m. During the period there has been an impairment to other intangible assets of £2.2m (2022: £0.1m). The charge relates to software assets within the Financial Services Division where there has been a strategic shift to focus development on the Group's PRIMIS Connect platform and a declining number of third party software users. Please refer to note 17 for further information.

The Group has reviewed its Software as a Service (SaaS) arrangements and current policy during 2023 prompted by the significant restructuring during the year. The Group has concluded that the policy to capitalise SaaS customisation costs, which was considered appropriate at the time, should be revised, and has determined that restatement of the prior year financial information is appropriate. The cumulative impact of the historic adjustment on retained earnings on 1 January 2022 was a reduction of £1.8m⁶ and was not cash adjusting.

Property, plant and equipment

Total capital expenditure in the year amounted to £0.7m (2022: £2.0m), primarily reflecting ongoing investment in Financial Services and Surveying & Valuation, and a reduction in Estate Agency Franchising with the operating model transformation during the period.

Financial assets

Financial assets of £5.5m at 31 December 2023 (31 December 2022: £1.0m) comprise contingent consideration assets and investments in equity instruments in unlisted companies.

During the period, the Group disposed of the Group First, RSC and Embrace B2C brokerage businesses to Pivotal Growth, with contingent consideration receivable in the first half of 2025 based upon 7x 2024 EBITDA performance. As at 31 December 2023, this asset is recorded at £4.8m (31 December 2022: £nil).

The fair value of units held in The Openwork Partnership LLP was reassessed at 31 December 2023 as £0.4m (31 December 2022: £0.7m).

In January 2023, the Group agreed to sell its shares in Yopa for £nil consideration, which was in line with its carrying value as at 31 December 2022.

In March 2023, the Group agreed to sell its shares in VEM for £0.2m consideration, received on completion, which was in line with its carrying value as at 31 December 2022.

Investment in joint ventures

In April 2021 the Group established the Pivotal Growth joint venture and holds a 47.8% interest at 31 December 2023. The joint venture is accounted for using the equity method and is held on the balance sheet at £9.4m as at 31 December 2023 (31 December 2022: £5.1m), reflecting the Group's equity investment in Pivotal Growth during the period (£4.7m), less our share of losses after tax for the period.

Investment in sublease

Total current and non-current investment in subleases was £3.3m as at 31 December 2023 (31 December 2022: £nil). This reflects the situation whereby the Group is an intermediate lessor, following the Estate Agency conversion to a wholly franchised model. As part of the franchising transition the leases held by the Group in respect of the previously owned network will be transferred to the franchisees, and the investment in sublease balance will reduce accordingly.

Loans to franchisees and appointed representatives

Loans provided as at 31 December 2023 were £2.1m (31 December 2022: £nil). As part of the initial support provided to the new franchisees of the previously owned Estate Agency branches, working capital loan facility agreements were put in place, of which £0.8m had been drawn down as at 31 December 2023 (31 December 2022: £nil). Loans to appointed representatives, which are granted in certain circumstances to support brokers during an onboarding period, were £1.3m as at 31 December 2023 (31 December 2022: £nil, having previously been included in trade and other receivables).

Financial liabilities

Contingent consideration liabilities

Contingent consideration liabilities at 31 December 2023 were £0.07m (31 December 2022: £2.3m). Contingent consideration liabilities relate solely to the cost of acquiring the remaining shares in Direct Life Quote Holdings Limited, which was subsequently paid in February 2024. The year-on-year reduction reflects the full settlement of the contingent consideration liability of £2.3m in RSC ahead of its disposal in January 2023.

Prior year restatements⁶

Franchising of previously owned branches

During the current period, the Group franchised its entire owned estate agency network (183 branches). In accounting for this significant transaction, the Group re-examined the accounting treatment applied to a much smaller transaction in H1 2019, when 39 owned estate agency branches were franchised. The impact of this was to restate the goodwill associated with these owned branches, de-recognising £5.2m of goodwill, recognising a franchise intangible, net of amortisation, of £1.7m and an associated deferred tax liability of £0.4m with a cumulative non-cash impact on retained earnings at 1 January 2022 of £4.0m.

Adjustments to assets held for sale

At 31 December 2022 the Group reported Marsh & Parsons as held for sale. Marsh & Parsons was written down to its fair value less cost to sell, which was calculated as the initial consideration received less transaction costs (£28.9m). The Group has re-examined the judgements made and has determined that an adjustment to consideration for debt-like items of £2.0m could have been reliably estimated at 31 December 2022. Rather than recognising this adjustment as an increase in the loss on disposal in 2023, the prior year financial information has been restated, in accordance with IAS 8.

Customisation costs in computing arrangements

During the year, the Group revisited its accounting policy in relation to customisation costs incurred in implementing Software as a Service (SaaS) arrangements. The Group has reviewed its SaaS arrangements and current policy during 2023 prompted by the significant restructuring during the year. The Group has concluded that the policy to capitalise SaaS customisation costs, which was considered appropriate at the time, should be revised, and has determined that restatement of the prior year financial information is appropriate. The cumulative impact of the historic adjustment on retained earnings on 1 January 2022 was a reduction of £1.8m and was not cash adjusting.

Cash offsetting

The Group has a bank offset arrangement that was previously recorded as part of cash and cash equivalents. The Group has reviewed its current arrangements and has concluded that while the Group has a legally enforceable right to offset, the Group did not intend to settle the year-end balance net. As a result, the overdraft balances included within the offset arrangement should be separately presented in the Group Balance Sheet. Consequently, a restatement has been made to increase cash and cash equivalents and bank overdrafts as at 31 December 2022 by £23.1m (2021: £24.4m). The restatement has no impact on net assets, the income statement or the statement of cash flows.

Group Statement of Cash flows

Operating cashflows before movements in working capital were £14.9m (2022: £47.6m) reflecting lower profits generated in 2023. Movements in working capital were an outflow of £11.0m (2022: £14.5m). The outflow in 2023 reflected higher Surveying billing in the last months of 2023 compared to the prior year, and amounts paid on behalf of franchisees ahead of rebilling. We expect working capital outflows to be more modest going forwards as the operating cycle of working capital continues to settle following the completion of significant restructuring and transformation programmes during 2023. The transformation has also resulted in a less capital-intensive business, with capital expenditure expected to be lower than in previous years, reflecting the franchise model in Estate Agency. The business is highly cash generative and ordinarily achieves a cash flow conversion rate⁴ of 75% to 100%. The ratio in 2023 was (2.2)% reflecting the materially lower Underlying Operating Profit, with a ratio of 77% achieved in 2022.

At 31 December 2023, Net Cash⁴ was £35.0m (31 December 2022: Net Cash £40.1m). Movements in the year included £4.7m further investment in Pivotal Growth (2022: £4.0m), capital expenditure of £2.9m (2022: £3.9m), exceptional costs in relation to divisional restructure and transformation programmes of £10.4m, payment of the 2022 final and 2023 interim dividends of £11.7m (2022: £11.8m) and the settlement of contingent consideration in RSC of £2.3m ahead of its disposal to Pivotal Growth. With the loss before tax³ of £40.6m (2022: £58.4m), including discontinued operations, there was no corporation tax paid.

Marsh & Parsons and First2Protect businesses were sold for net consideration received during the period of £26.1m and £9.3m respectively, with contingent consideration for the disposals of Group First, RSC and Embrace receivable in 2025 based upon 7x 2024 EBITDA performance. Total cash balances in the disposed businesses at the point of sale were £8.3m.

Bank facilities/liquidity

In February 2023, we agreed an amendment and restatement of our banking facility, with a £60m committed revolving credit facility, and a maturity date of May 2026, which replaced the previous £90m facility due to mature in May 2024. The terms of the facility, including covenants, have remained materially the same as the previous facility. The facility is provided by the same syndicate members as before, namely Barclays Bank plc, NatWest Bank plc and Santander UK plc.

In arranging the banking facility, the Board took the opportunity to review the Group's borrowing requirements, considering our strong cash position and the Group's aim of reducing its reliance on the housing market. We therefore reduced the size of the committed facility and the costs associated with it. To provide further flexibility to support growth, the facility retains a £30m accordion, to be requested by LSL at any time, subject to bank approval.

Under the terms of the facility the Group can operate bank accounts in surplus and overdraft positions provided that the net position under the arrangement is within the facility limits. Overdraft balances included within the bank offset arrangement are presented separately from cash surplus balances in the Group Balance Sheet but are considered to form part of cash and cash equivalents in the group statement of cash flows as they are repayable on demand and form an integral part of the Group's cash management.

The Financial Services Network business has a regulatory capital requirement which represents 2.5% of its regulated revenues. The regulatory capital requirement was £6.1m at 31 December 2023 (31 December 2022: £5.9m), with a surplus of £24.7m (31 December 2022: £24.9m).

Treasury and risk management

LSL has an active debt management policy. The Group does not hold or issue derivatives or other financial instruments for trading purposes. Further details on the Group's financial commitments, as well as the Group's treasury and risk management policies, are set out in the Annual Report and Accounts 2023.

International Accounting Standards (IAS)

The Financial Statements for the period ended 31 December 2023 have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and UK-adopted IAS.

1          Following the conversion of the entire owned Estate Agency network to franchisees in H1 2023, this was classified as a discontinued operation and is now presented as such in the Financial Statements. Refer to notes 2 and 6 to the Financial Statements

2          Revenue: £138.1m in 2023 with statutory revenue of £144.4m less £6.2m revenue from businesses disposed in 2023, as compared to £154.1m in 2022 with statutory revenue of £217.5m less £63.4m revenue from businesses disposed in 2023

3          Group (and Divisional) Underlying Operating Profit is before exceptional items, contingent consideration assets & liabilities, amortisation of intangible assets and share-based payments. Refer to note 5 to the Financial Statements for reconciliation of Group and Divisional Underlying Operating Profit to statutory operating (loss)/profit for continuing, discontinued and total operations

4          Refer to note 35 to the Financial Statements

5          Refer to note 17 to the Financial Statements

6          Refer to note 36 to the Financial Statements

7          Refer to note 9 to the Financial Statements

8          Refer to note 12 to the Financial Statements

Group Income Statement

for the year ended 31 December 2023

*See note 36 for details regarding restatements.

Group Statement of Comprehensive Income

for the year ended 31 December 2023

*See note 36 for details regarding restatements.

Group Balance Sheet                                                                                                             

as at 31 December 2023

*See note 36 for details regarding restatements.