TIDMLSL
RNS Number : 7891W
LSL Property Services PLC
28 April 2021
28 April 2021
LSL Property Services plc ("LSL" or "The Group")
FINAL RESULTS, VERY STRONG TRADING IN Q1, 2021, RESUMPTION OF
GUIDANCE AND REINSTATEMENT OF DIVID POLICY
LSL reports highly resilient full year financial results for the
year ended 31 December 2020, followed in the first quarter of 2021
by very strong financial performance and trading momentum. LSL also
sets out its strategic roadmap, with financial services at the
forefront, recommences guidance, with an improved growth profile,
and reinstates its dividend policy.
KEY HIGHLIGHTS
In an exceptional year dominated by the unprecedented impact of
COVID-19, LSL delivered a highly resilient 2020 financial
performance
-- Group Underlying Operating Profit(1) (pre COVID-19 costs)
increased to GBP41.5m (2019: GBP37.0m)
-- Group Underlying Operating Profit (post COVID-19 costs) of GBP35.2m
-- Profit before tax increased by 31% to GBP20.9m
-- Historically low reported Net Bank Debt(2) at 31 December 2020 of GBP1.6m (2019: GBP41.9m)
Underlying Operating Profit supported by further growth and
focus on Financial Services, and strong H2 recovery across all
divisions following the end of the first COVID-19 "lockdown"
-- Financial Services Division Underlying Operating Profit(1)
(pre COVID-19 costs) increased 16% to GBP13.5m
-- LSL mortgage completion lending increased 3% to GBP32.6bn,
with a total market share increased to 9%(3)
-- Total financial advisers grew by 8% to 2,585 (2019: 2,392)
-- Surveying Division performance recovered strongly from the
lockdown in H1, with Underlying Operating Profit(1) (pre COVID-19
costs) up 30% in H2, to leave full year profit (pre COVID-19 costs)
up 9%
-- Estate Agency Division Underlying Operating Profit(1) (pre
COVID-19 costs) increased by 8%. After being materially impacted in
H1 by COVID-19, performance recovered quickly in H2, with the
residential exchange pipeline at 31 December 2020 more than 65%
above the same date in 2019
Significant progress in developing and executing clear Financial
Services led growth strategy supported by strong balance sheet
-- Strategic roadmap set out, with focus on significant growth
opportunities in Financial Services
-- Announcement on 27 April 2021 of five-year agreement to
provide digital and face-to-face mortgage and protection advice to
The Property Franchise Group plc's expanded network of over 430
physical office locations
-- Announcement on 23 April 2021 of up to GBP200m to be invested
by Pivotal Growth joint venture with Pollen Street Capital as part
of LSL's strategy to develop a pre-eminent position in the mortgage
intermediary market
-- Announcement on 11 February 2021 of the acquisitions of the
business and assets of Mortgage Gym Limited and a 60% stake in
Direct Life Quote Holdings Limited, as part of LSL's digital
strategy to drive significant growth in mortgage and protection
business
-- Senior appointments made to improve management bench strength
-- Announcement on 24 February 2021 of new banking facility,
with a maturity date of May 2024, which will give the Group balance
sheet flexibility to take advantage of attractive opportunities in
the market, particularly in financial services
Very strong financial performance in the first quarter of 2021,
building on the positive trading in 2020
-- Group Underlying Operating Profit for Q1 2021 was GBP13.1m,
significantly higher than comparative periods for 2019 of GBP2.1m
and 2020 of GBP3.4m, benefiting materially from strong trading
conditions, the conversion of the larger pipelines, cost control,
including the reshaping of the LSL Estate Agency networks during Q1
2019
-- Each of LSL's Divisions delivered material increases in
financial performance in Q1 2021 compared to the same periods in
2019 and 2020
-- Mortgage completions for Q1 2021 increased to GBP9.3bn, ahead
of 2019 and 2020 by 29% and 22% respectively
-- Financial adviser numbers have grown strongly, with an
increase of 4% since 31 December 2020, and 14% year-on-year as at
31 March 2021. The pipeline of advisers also increased further over
the significant pipeline at 31 December 2020
-- Surveying revenue in Q1 increased by 4% compared to 2019, and
5% compared to 2020. There was a significant ramp up of activity as
the quarter progressed, with revenue in March 2021 up 13% compared
to the same month in 2019, and up 28% compared to COVID-19 impacted
March 2020
-- Estate Agency like-for-like Residential Sales exchange income
in Q1 2021 was up by 57% on 2019 and 61% on 2020, as very strong
pipelines converted
-- The Residential Sales exchange pipeline remained very strong
at the end of the quarter, at 48% more than 2019 and 25% more than
2020 at the same comparable date and remains almost unchanged from
the large pipeline reported at 31 December 2020
-- Marsh & Parsons performed strongly, with total revenue in
Q1 up 18% over 2019 and up 13% compared to 2020
-- Net Bank Debt at 31 March 2021 was GBP8.3m (2020: GBP42.1m).
Adjusting for COVID-19 related deferrals, mainly in relation to
VAT, the underlying Net Debt position was approximately GBP17m
The Board is reassured by the resilience of the Group's
businesses and, encouraged by continued strong trading in April, is
restarting guidance with an improved growth profile with Financial
Services at the forefront, and is resetting LSL's dividend policy
to provide flexibility to take advantage of inorganic
opportunities
-- Continued very strong front-end sales metrics in each of
LSL's three Divisions in April 2021, ahead of internal expectations
and 2019 (comparisons to 2020 are not meaningful given the lockdown
at that time)
-- PRIMIS mortgage applications in April are tracking significantly ahead of 2019 and 2020
-- With 2019 as a normalised base year, given the strong Q1
trading and financials, we believe that the Group should deliver
2021 Group Underlying Operating Profit significantly ahead of 2019,
with further growth expected in subsequent years
-- By 2023, for the first time, we expect the Financial Services
Division to be the largest profit contributor to the Group
-- The dividend policy has been reinstated and rebased, with an
expected pay-out of 30% of Underlying Operating Profit after
finance charges and normalised taxation. No final dividend declared
for 2020.
-- This guidance assumes no material new impact on markets from
any re-emergence of the COVID-19 virus
Commenting on today's announcement, David Stewart, Group Chief
Executive, said:
"Our financial performance during 2020 highlighted the
resilience and strength of our Group. The work we have been able to
complete on our strategy emphasises our exciting future, in which
Financial Services will be our chief engine of growth and enhanced
profitability.
"Our PRIMIS network is one of the leading service providers to
mortgage intermediaries, whilst our heritage provides us with deep
expertise in the provision of mortgage and protection advice to
estate agency customers. The Group has invested significantly in
its digital capability, which was enhanced further by the recent
acquisitions of Mortgage Gym and Direct Life and Pension Services,
and we now have industry-leading technology available. These
factors combined to make LSL a compelling partner for Pollen Street
Capital and The Property Franchise Group plc, in two recently
announced strategic initiatives that we expect to deliver
significant value for our Shareholders.
"However, I would add that we have been equally encouraged by
the excellent performance of our Estate Agency and Surveying
businesses. In Estate Agency we are exceptionally well placed to
benefit from the current strong market, having increased our market
share since the end of the lockdown. Our Surveying business is
similarly performing extremely well, with opportunities to broaden
its product set to lenders and customers.
"This progress could not have been made without the hard work
and commitment of colleagues working across the Group and I would
like to thank them for their exceptional effort and support.
"With current market conditions supporting growth in all of our
businesses, I believe LSL is exceptionally well-positioned to
continue to grow both organically and via acquisition and we look
forward to the future with confidence."
2020 2019 %
GBPm GBPm change
------ -------
Group Revenue 266.7 311.1 -14
Group Underlying Operating Profit -
pre COVID-19 costs(1) 41.5 37.0 +12
Operating Margin - pre COVID19 costs
(%) 15.6 11.9 +370 bps
Group Underlying Operating Profit -
post COVID-19 costs(1) 35.2 37.0 -5
Operating Margin - post COVID19 costs
(%) 13.2 11.9 +130 bps
Exceptional gains 0.7 2.5 -72
Exceptional costs (7.1) (15.7) -55
Group Operating Profit 23.9 19.7 +21
Profit before tax 20.9 16.0 +31
----------------------------------------- ------ ------- ---------
Basic Earnings Per Share(4) (pence) 15.9 12.6 +26
Adjusted Basic Earnings Per Share(4)
- (pence) 31.9 28.0 +14
Net Bank Debt(2) at 31 December 1.6 41.9 nm
Gearing ratio(5) at 31 December (times) 0.03 0.81 nm
Final proposed Dividend (pence) nil - nm
Full year Dividend (pence) nil 4.0 nm
----------------------------------------- ------ ------- ---------
nm: not meaningful
Notes:
All figures quoted are for year ended 31 December 2020 unless
otherwise stated
1 Group Underlying Operating Profit is before exceptional costs,
contingent consideration, amortisation of intangible assets,
share-based payments and includes GBP15.7m of amounts receivable
through the Coronavirus Job Retention Scheme (as set out in Note 6
of the financial statements). Segment Underlying Operating Profit
is stated on the same basis as Group Underlying Operating
profit.
2 Refer to Note 11 to the Financial Statements for the calculation
3 Market share excludes Product Transfers
4 Refer to Note 6 of the Financial Statements for the calculation
5 Gearing ratio is defined as Net Bank Debt divided by Group
Adjusted EBITDA (refer to Note 5 of the Financial Statements)
For further information, please contact:
David Stewart, Group Chief
Executive Officer
Adam Castleton, Group Chief
Financial Officer
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LSL Property Services plc investorrelations@lslps.co.uk
------------------------------------
Helen Tarbet
------------------------------------
Sophie Wills
------------------------------------
Buchanan 0207 466 5000 / LSL@buchanan.uk.com
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Notes on LSL
LSL is one of the largest providers of services to mortgage
intermediaries and mortgage and protection advice to estate agency
customers, completing GBP32.6bn of mortgages in 2020. It represents
approximately 9% of the total purchase and remortgage market with
around 2,600 financial advisers. It was named Mortgage Network of
the Year by both Moneyfacts and Mortgage Introducer in their 2020
awards, as well as Best Network 300+ ARs by Mortgage Strategy.
e.surv is one of the UK's largest provider of surveying and
valuation services, supplying seven out of the ten largest lenders
in the UK, employing over 500 operational surveyors, and performing
over 500,000 valuation and surveys per annum for key lender
clients. It was named Best Surveyor/Valuer at the 2020 Mortgage
Strategy awards.
LSL operates a network of 226 owned and 130 franchised estate
agency branches, with brands that include Your Move, Reeds Rains
and Marsh & Parsons. For further information please visit LSL's
website: lslps.co.uk
PRIMIS is the trading style of First Complete Limited, Personal
Touch Financial Services Limited and Advance Mortgage Funding
Limited which are all authorised and regulated by the Financial
Conduct Authority.
Group Chief Executive's Review
In an exceptional year dominated by the unprecedented impact of
the COVID-19 virus, I am pleased to report that LSL's performance
was highly resilient, reporting Underlying Operating Profit (pre
COVID-19 costs) of GBP41.5m (2019: GBP37.0m).
This performance provided the solid foundation on which we could
build for the future and I am excited with the progress we made in
developing a clear and compelling vision for the LSL Group,
including our plans to leverage our existing leading positions in
the mortgage and protection advice markets. The recent
announcements of the acquisitions of Mortgage Gym and DLPS and our
strategic partnerships with Pollen Street Capital and The Property
Franchise Group underline the significant potential of our
Financial Services businesses.
Response to COVID-19 and General Election
The start of the year saw strong trading as the decisive
December 2019 General Election result brought stability to the
housing market and wider economy following an extended period of
uncertainty in the wake of the Brexit referendum and subsequent
political instability. Each of our trading divisions performed
well, reporting results in both January and February ahead of the
corresponding period in 2019.
During this period, the Board confirmed reports that it was
considering the advantages to Shareholders of a possible
combination with Countrywide plc, although discussions remained at
an early stage.
By February, the significance of earlier reports of the COVID-19
outbreak in China started to become more evident and the Board
responded quickly to this information. We suspended consideration
of any merger with Countrywide plc, before announcing that the full
year dividend for 2019 would be suspended until the position became
clearer, in doing so becoming one of the first companies to take
this step. The delivery of long-term value to Shareholders remains
our highest priority, so this was not an easy decision to take.
However, as we entered a period of great uncertainty, it was an
essential measure to preserve the Group's strong cash position, and
one that subsequent events were to justify quickly.
This decisive approach was demonstrated further in the lead-up
to the March 2020 lockdown. The Board prepared detailed contingency
plans, with our overriding priority throughout being the health and
safety of colleagues and customers alike.
In terms of our business, we recognised immediately that cash
conservation would be essential to maintaining the future strength
of LSL and a series of further measures were introduced to this
end, including the scrapping of salary rises otherwise due to take
effect in April, and the deferral of all other non-essential cash
expenditure. The Board also recognised that it would be
inappropriate to declare any dividends for 2020. Further
information is included in the Operational and Finance Reviews
contained in this announcement. The success of these steps,
combined with the Group's historically prudent approach to debt as
well as the assistance afforded by the Coronavirus Job Retention
Scheme, meant that on 5 June 2020, we were able to confirm that
after undertaking stress testing which assumed significant stress
throughout 2020, the Group would retain sufficient liquidity
throughout the year.
Development of Business Model
This period also saw us demonstrate further our agility and the
increasing diversification of our business model, which over
successive years has seen a reduced reliance on housing market
cycles. Staff right across the business found effective ways of
working remotely, whether through the provision of mortgage advice
via video link or valuations on properties where the use of data
negated the need for a full physical inspection to verify a minimum
value. In Estate Agency, tenants tended to stay in their property
resulting in high levels of recurring Lettings Income.
This speed of response was similarly evident when the Government
eased lockdown restrictions, and we moved quickly to meet pent-up
demand and increased levels of new business as our mortgage and
protection advice, valuations, and estate agency businesses all saw
high levels of demand. The reasons for this are varied and some
parts of the Group were undoubtedly boosted by the introduction of
the Stamp Duty Holiday for properties valued up to GBP500,000.
Colleagues worked exceptionally hard to take maximum advantage of
these conditions for the benefit of our shareholders, helping to
deliver very strong performance for the second half of the year,
with H1 Underlying Operating Profit (pre COVID-19 costs) 17% ahead
of 2019.
Environment, Social and Governance
Before turning to the future, I would like to comment on the
importance the Board places on our Environmental, Social and
Governance (ESG) framework, a comprehensive review of which will be
set out in the Annual Report & Accounts 2020. I would
particularly like to highlight the launch of our Inclusivity &
Diversity and Community forums, which both form part of our overall
Staff Engagement Programme. Our Inclusivity & Diversity Forum
aims to ensure LSL provides a supportive working environment for
existing and prospective colleagues, and to ensure that all members
of staff have the same opportunity to take their career forward.
The Community Forum has been established to help maximise the
impact we make in our local communities. Each group is led by a
colleague who will work with other colleagues across the business
to make a real difference in these important areas. Helen Buck
(Executive Director - Estate Agency) is supporting the Inclusivity
& Diversity Chair and Sapna Bedi FitzGerald (Company Secretary
& General Counsel) the Communities Forum Chair.
In addition, as part of our ESG strategy we have formally
adopted a new Environmental Policy which codifies our commitment to
reducing our impact on the environment through the continued
development and improvement of our environmental performance. This
statement is backed with the introduction of clear and objective
targets against which we will report our performance.
Andy Deeks (Chief Strategy Officer) has senior executive
responsibility for the ESG programme as a whole supported by a
dedicated senior manager.
Looking Ahead
Our financial performance during 2020 highlighted the resilience
and strength of our Group. The work we have been able to complete
on our strategy emphasises our exciting future, with opportunities
in Financial Services core to our growth plans. We have recently
welcomed staff from Direct Life & Pension Services and Mortgage
Gym to the Group, businesses that will enhance our capability in
the Protection and Mortgage markets and increase the productivity
of our advisers. On 23 April 2021, we announced a joint venture
with Pollen Street Capital to "buy-and-build" a major UK mortgage
broking business, whilst on 27 April we announced that we have been
selected by The Property Franchise Group as the preferred provider
of mortgage and protection advice to over 430 physical office
locations.
This progress could not have been made without the hard work and
commitment of all our colleagues, and their effort and support
throughout the year has been exceptional. I would like to thank
them on behalf of the entire Board. I would also like to express my
appreciation for the support the Board has given to myself and the
rest of the executive team, which has been invaluable in helping us
to navigate what at times have been challenging conditions. I am
confident that LSL has an exciting future ahead.
David Stewart
Group Chief Executive Officer
28 April 2021
Strategy Review
About LSL
LSL is one of the largest providers of services to mortgage
intermediaries, specialist mortgage and protection advice to estate
agency and new build customers and valuation services to the UK's
biggest mortgage lenders.
It also operates a network of 226 owned and 130 franchised
estate agency branches.
LSL's strategy
Financial Services is at the heart of LSL's strategy. The Group
will continue to grow its Surveying and Valuation and Estate Agency
Divisions and implement a new Target Operating Model, including a
specific focus on leveraging their capabilities to grow the
Financial Services Division.
LSL already operates some of the most successful Financial
Services businesses in the UK. Through its intermediary network and
club, it provided services in relation to GBP32.6bn of mortgage
completions in 2020, equating to just over 9% of the total purchase
and remortgage markets. LSL is also a specialist in providing
mortgage and protection advice to estate agency customers and owns
two of the UK's largest new homes mortgage advice businesses, and a
number of award-winning technologies in Toolbox, Mortgage Gym, and
Direct Life & Pension Services.
LSL aims to:
-- Remain the leading mortgage network and club in the UK, further growing market share
-- Become a major player in distribution via estate agencies, as
demonstrated by its new long-term partnership with The Property
Franchise Group
-- Buy and build a major national mortgage broker by executing a
"buy-and-build" strategy through Pivotal Growth joint venture
-- Significantly increase revenues in all channels by optimising
existing products and services and introducing new ones, including
protection, general insurance, conveyancing and surveys
LSL believes that the Financial Services market will remain
extremely attractive, due to:
-- Continued significant customer demand for mortgage,
protection and insurance advice through intermediaries
-- Resilient performance through different housing market cycles
- remortgages and product transfers are a larger combined market
than house purchases and, additionally, the market for protection
and insurance products is not correlated with housing
transactions
-- Ability to unlock value within the Group's existing distribution and customer base
-- Opportunity to grow new distribution through strategic partnerships
In Surveying and Valuation, more than 500 operational surveyors
carried out 487,000 valuations last year, serving seven of the UK's
top ten lenders, including all of Lloyds Banking Group's mortgage
lending. In this Division, LSL aims to:
-- Grow profitable market share in B2B, including leveraging its
detailed market knowledge, data and expertise to offer high value
insight in specialist areas, such as cladding, new build and equity
release
-- Develop its Direct-to-Consumer (D2C) offer, including
building a D2C sales team and developing its D2C survey product
-- Support the development of Financial Services, for example by
attracting intermediaries to the PRIMIS network through its
Surveying and Valuation proposition and offering survey products in
its Financial Services business
In Estate Agency LSL offices facilitated 21,000 house exchanges
and managed 34,000 rental properties in 2020, across 350 owned and
franchised locations. The Group aims to:
-- Grow profitable market share in existing catchments, for
example by investing in digital marketing presence and in
technology to help the business respond faster to valuation
requests
-- Improve the franchise proposition and work with existing
franchisees to support their growth aspirations and expand the
Group's reach
-- Support the development of Financial Services, in particular
by generating mortgage and protection leads, improving penetration
of other products such as conveyancing and surveys, and exploiting
digital technology to create a unified customer experience
Strategic themes
In delivering this strategy, LSL will focus on six core
strategic themes:
1. Grow share of core markets: continue to focus on organic and acquisition opportunities
2. Generate new sources of leads: develop, buy and/or partner to develop
3. Build resilient revenue streams: focus on customer retention
and digital offering of products to support face-to-face
4. Introduce new products and services: develop, buy and/or
partner to generate new revenue opportunities, in line with
customer needs
5. Implement New Target Operating Model and Ways of Working:
focus on revenue and cost synergies, as well as embracing digital
technology
6. Deploy capital to high-growth areas: simplify the Group and
invest in areas of higher growth and return
These themes will be supported by two strategic enablers:
1. Leverage technology and digital capability: exploit existing
market-leading technology, consider new technology and, especially,
use digital to support growth
2. Hire, retain and develop talented people: continue to hire
the best people in the industry to drive growth
Direct to Consumer
Through its Estate Agency distribution, in 2020 LSL had access
to customers across 21,000 exchanges and 34,000 rental properties.
In many locations and products, the Group is very successful at
generating revenue from these transactions, such as through
mortgages or conveyancing. However, there is a significant
opportunity to increase revenues by offering customers a more
consistent, comprehensive, scalable and enduring solution,
supported by both people and digital technology:
-- More consistent: offered to all customers, on every transaction
-- More comprehensive: offer existing products to more customers
and offer new products such as surveys
-- More scalable: supporting local fulfilment with digital
services, provided by central and remote teams and advisers
-- More enduring: seek to maximise the lifetime value of the
customer relationship, not just secure a point-in-time
transaction
LSL will focus on unlocking value within the Group, with digital
technology at its heart, and leveraging the divisions to create
value which is greater than the sum of the parts.
Current Trading, Outlook, Recommencing Guidance and
Reinstatement of Dividend Policy
April's trading built further on the very strong performance
over the first quarter and remains ahead of previous internal
expectations.
Activity in the property market has been elevated since the end
of the first National Lockdown in May 2020, and this activity
continues to be supported by favourable conditions in the mortgage
market, the extension of the Stamp Duty holiday until the end of
June and the nil rate band being doubled until the end of
September. Mortgage availability has continued to improve,
including increased provision of higher loan to value mortgage
products by mainstream lenders. Furthermore, mortgage rates remain
low by historic standards, increasing the confidence of prospective
house purchasers and providing remortgage opportunities for
brokers. The latest market expectations for mortgage lending in
2021 indicate an increase of around 6% over 2019 to around
GBP283Bn(1) . Residential property market transactions are
particularly difficult to predict, even more so in the current
environment, however given recent trends, it is expected that
activity levels in the residential sales market will remain
robust.
These conditions are favourable for each of the Group's
principal businesses. However, the Group's increasingly diversified
revenue streams and in particular the significant growth
opportunities identified and on which management has started to
execute mean the Group is not dependent on housing market activity
levels to drive medium term growth.
The Board is reassured by the resilience of the Group's
businesses and, encouraged by continued strong trading in April, is
recommencing guidance, which has been suspended since the emergence
of COVID-19, with an improved growth profile with Financial
Services at the forefront, and is resetting LSL's dividend policy
to provide flexibility to take advantage of inorganic
opportunities.
The LSL Board has reviewed the latest management forecasts. With
2019 as a normalised base year, given the strong Q1 trading and
financials, we believe that the Group should deliver 2021 Group
Underlying Operating Profit significantly ahead of 2019, with
further growth expected in subsequent years.
In 2021, full year Group revenue is expected to be around 10%
ahead of 2019, with Group Underlying Operating margin increasing by
around 250bps compared to 2019 and strong profit growth delivered
from each Division, resulting in Group Underlying Operating Profit
expected to be significantly ahead of 2019. This includes initial
investment expenditure related to the recently announced strategic
financial services partnerships with Pollen Street Capital and The
Property Franchise Group, which will drive further growth in the
medium term. LSL is highly cash generative and expects to end 2021
with very minimal debt, providing balance sheet flexibility to take
advantage of investment opportunities.
LSL expects to drive further attractive growth as the benefits
of its financial services led strategy deliver an increasing
proportion of Group profits. By 2023, for the first time, the
Financial Services Division is expected to be the largest profit
contributor to the Group.
In light of the uncertainty resulting from the emergence of the
COVID-19 virus, and the subsequent significant Government support
provided across the economy, the Board determined it was
inappropriate to pay dividends. The final Dividend for 2019
previously announced was cancelled, and the Group has not declared
either an Interim or final dividend for 2020. This amounts to a
total of GBP20.5m in payments not made when compared to the Board's
previous dividend policy.
The LSL Board is confident of the growth prospects for the Group
and recognises that the payment of a dividend is important for many
of its existing and prospective Shareholders. LSL confirms that it
intends to reinstate dividends, with dividend payments expected to
recommence in the second half of 2021 following the release of the
Interim Results. The Board has considered its dividend policy and
alternative uses of capital for the benefit of Shareholders and
believes that an expected annual pay-out of 30% of Underlying
Operating Profit after finance and normalised tax charges is
appropriate, with broadly a 1:2 ratio between Interim and Final
Dividend. This will maintain dividend cover at roughly three times
earnings over the business cycle. The Board will review capital
allocation regularly to ensure LSL maintains an efficient balance
sheet.
Notes:
1 Intermediary Mortgage Lenders Association's ("IMLA) current
estimate of gross new lending for 2021 - January 2021
Business Reviews
Group Summary
Group Financials
Summary H1 H2 FY
2020 2019 Var 2020 2019 Var 2020 2019 Var
P&L (GBPm)
------------------------- ------ ------ ------- ------ ------ ------- ------ ------ -------
Revenue 114.9 154.1 (25)% 151.8 157.0 (3)% 266.7 311.1 (14)%
Group Underlying
Operating Profit(1)
(pre COVID-19 costs) 12.5 12.2 3% 29.0 24.9 17% 41.5 37.0 12%
Group Underlying
Operating margin
(pre COVID-19 costs) 10.9% 7.9% 300bps 19.1% 15.8% 330bps 15.6% 11.9% 370bps
Group Underlying
Operating Profit(1)
(post COVID-19 costs) 9.7 12.2 (20)% 25.5 24.9 2% 35.2 37.0 (5)%
Group Underlying
Operating margin
(post COVID-19 costs) 8.5% 7.9% 60bps 16.8% 15.8% 90bps 13.2% 11.9% 130bps
Division Underlying
Operating Profit(1)
(pre COVID-19 costs)
------------------------- ------ ------ ------- ------ ------ ------- ------ ------ -------
Financial Services 4.9 4.3 14% 8.5 7.3 17% 13.5 11.6 16%
Surveying 4.9 6.3 (23)% 13.0 10.0 30% 17.9 16.3 9%
Estate Agency 4.1 4.0 3% 11.4 10.4 9% 15.5 14.5 8%
Unallocated Central
Costs (1.4) (2.5) (45)% (3.9) (2.9) 36% (5.3) (5.4) (1)%
Group Underlying
Operating Profit
(pre COVID-19 costs) 12.5 12.2 3% 29.0 24.9 17% 41.5 37.0 12%
Division Underlying
Operating Profit(1)
(post COVID-19 costs)
------------------------- ------ ------ ------- ------ ------ ------- ------ ------ -------
Financial Services 4.6 4.3 7% 7.6 7.3 4% 12.3 11.6 6%
Surveying 4.1 6.3 (35)% 12.1 10.0 21% 16.2 16.3 (1)%
Estate Agency 2.4 4.0 (40)% 9.7 10.4 (7)% 12.1 14.5 (16)%
Unallocated Central
Costs (1.4) (2.5) (43)% (4.0) (2.9) 36% (5.4) (5.4) (1)%
Group Underlying
Operating Profit
(post COVID-19 costs) 9.7 12.2 (20)% 25.5 24.9 2% 35.2 37.0 (5)%
------ ------ ------- ------ ------ ------- ------ ------ -------
Notes:
1 Group Underlying Operating Profit is before exceptional costs,
contingent consideration, amortisation of intangible assets,
share-based payments and includes GBP15.7m of amounts receivable
pursuant to the Coronavirus Job Retention Scheme and utilised to
pay employee salaries for those placed on furlough (as set out in
Note 5 of the Financial Statements). Divisional Underlying
Operating Profit is stated on the same basis as Group Underlying
Operating profit.
After a highly resilient performance in a COVID-19 impacted H1
2020, which reflected operational agility and careful financial
management, in H2, following the reopening of the property markets,
performance recovered strongly, as colleagues returned to work from
furlough, re-built pipelines, delivering improving financial
performance as H2 progressed, and setting up a strong platform for
Q1 2021. High standards of service to customers were maintained
throughout, despite many colleagues still working from home during
the latest lockdown.
In 2020, LSL's markets were materially impacted by COVID-19,
with total mortgage lending down 9%(1) , total mortgage approvals
down 10%(2) and UK housing market transactions down 11%(3) . LSL's
financial performance was highly resilient given these
headwinds.
Group Revenue decreased by 14.3% to GBP266.7m (2019: GBP311.1m),
impacted by COVID-19, the planned reduction in February 2019 of 164
estate agency branches to reshape the Your Move and Reeds Rains
networks, and the tenant fee ban introduced in June 2019.
Group Revenue in H1 2020 reduced by 25%. Much of this reduction
resulted from the restrictions arising from the first national
lockdown, between 23 March and 13 May 2020, which affected the last
weeks of Q1 2020 and much of Q2 2020 trading, as the entire network
of 356 owned and franchised estate agency branches was closed, with
other activities restricted, including physical valuations by
surveyors, home moves and viewings.
Following the reopening of the property markets during May 2020,
revenue performance increased steadily throughout the second half,
with total Group Revenue for H2 behind by just 3%. Group Revenue in
Q4 recovered to be 4% ahead of the same period in 2019, with
particularly strong December trading as reported on 15 January
2021. Given the lead time between initial activity and revenue
being recognised, the recovery in underlying trading conditions was
somewhat greater than indicated by these numbers.
Group Underlying Operating Profit (post COVID-19 costs) was
GBP35.2m (2019: GBP37.0m). Group Underlying Operating Profit is
stated after GBP6.4m of COVID-19 related net costs and before net
exceptional costs of GBP6.4m, contingent consideration,
amortisation and share based payments. Group Underlying Operating
Profit (pre COVID-19 costs) was GBP41.5m, being 12% up against
prior year. These figures include amounts received through the
Coronavirus Job Retention Scheme (CJRS).
COVID-19 related net costs of GBP6.4m include costs incurred for
unused property and other assets, such as vehicles, while the
national lockdown was in place during 2020, and other costs
including holiday pay accruals and PPE, net of property grants
received during the national lockdown.
Group Underlying Operating Profit includes GBP15.7m received
through the CJRS, which was used to meet the salaries of employees
placed on furlough and secure long-term jobs, and GBP2.4m of
business rates relief. The Group also received property grants of
GBP2.6m. Around 90% of the total CJRS amounts, was received during
H1 2020, reflecting the impact of the significant restrictions on
activity in the housing market, the required closure of the Estate
Agency branch networks, the restriction on all physical property
valuations, which resulted in c.3,300 employees being placed on
furlough during the first national lockdown. By the end of July
2020, over 85% of furloughed employees had returned to work, with
the remainder returning steadily over the following months,
reflecting the successful use of the scheme to safeguard jobs, with
no colleagues remaining on furlough.
In light of the support provided by Government schemes, the
Board determined it was inappropriate to pay the final dividend for
2019 or to declare any dividends for 2020. In addition, planned
salary rises in 2020 were cancelled and severe restrictions placed
on management bonuses. No executive director bonuses were awarded
for 2020.
Underlying Operating Profit is summarised below:
2020 2019
GBPm GBPm
Group Underlying Operating
Profit (post COVID-19 costs) 35.2 37.0
Adjustments for COVID-19
related net costs:
On assets unused during lockdown 3.0 -
(premises, vehicles etc.)
Other costs including holiday 3.3 -
pay accrual
------ ------
Group Underlying Operating
Profit (pre COVID-19 costs) 41.5 37.0
------ ------
Group Underlying Operating Profit (post COVID-19 costs) in H1
was down 20% (Q1 +62%, Q2 -37%), reflecting a strong start to the
year as political uncertainty receded, before profitability reduced
significantly during the first national lockdown in which the
Government introduced severe restrictions on business activity.
Profitability recovered quickly in June, following easing of these
restrictions.
Trading was strong throughout H2, with the Government
reiterating its intention to allow the housing market to operate as
normally as possible, allowing the Group's Financial Services,
Surveying and Estate Agency operations to operate more normally in
line with Government and Group safety guidance. Group Underlying
Operating Profit (post COVID-19 costs) in H2 was GBP25.5m, up 2%
compared to the prior year.
Financial Services delivered a particularly resilient
performance, with Underlying Operating Profit post and pre COVID-19
costs up in both H1 and H2. The Financial Services Division
represented an increased proportion of Group profit, continuing the
trend of recent years as the Group focuses on growth in this
area.
Surveying Division Underlying Operating Profit (post
COVID-costs) was broadly in line with the prior year, representing
a resilient performance. The Division was materially impacted by
business restrictions during the first national lockdown, then
recovered strongly in the second half, benefiting from strong
lender pipelines and increased new business activity.
The Estate Agency Division's performance also recovered in the
second half of the year, having been significantly impacted in the
first national lockdown. Estate Agency Division Underlying
Operating Profit (post COVID-19 costs) for the year was down 16%
(-40% in H1 and -6% in H2). The residential sales exchange pipeline
at 31 December 2020 was more than 65% above the same date in
2019.
Notes:
1 UK Finance - New mortgage lending by purpose of loan, UK (BOE)
(excluding product transfers)
2 Bank of England - House Purchase Approvals and Total Mortgage Approvals
3 HMRC - Residential Property Transactions GBP40,000 or above
Financial Services Division
Financial Services: Financials Summary H1 H2 FY
2020 2019 Var 2020 2019 Var 2020 2019 Var
P&L (GBPm)
------------------------------------------- ------ ------ ------- ------ ------ ------- ------ ------ -------
Total revenue 28.1 34.3 (18)% 32.9 35.5 (7)% 61.0 69.8 (13)%
Underlying Operating Profit(1)
(pre COVID-19 costs) 4.9 4.3 14% 8.5 7.3 17% 13.5 11.6 16%
Underlying Operating margin
( pre COVID-19 costs) 17.5% 12.6% 490bps 25.9% 20.6% 530bps 22.1% 16.7% 540bps
Underlying Operating Profit(1)
(post COVID-19 costs) 4.6 4.3 7% 7.6 7.3 4% 12.3 11.6 6%
Underlying Operating margin
(post COVID-19 costs) 16.5% 12.6% 390bps 23.2% 20.6% 260bps 20.2% 16.7% 350bps
KPIs
------------------------------------------- ------ ------ ------- ------ ------ ------- ------ ------ -------
LSL Mortgage Completion Lending(2)
(GBPbn) 14.6 14.7 (0)% 18.0 17.1 6% 32.6 31.7 3%
LSL Market Share(3) 9.0% 8.5% 50bps 9.1% 8.6% 50bps 9.1% 8.6% 50bps
Total advisers 2,431 2,277 7% 2,585 2,392 8% 2,585 2,392 8%
Number of AR firms 896 860 4% 930 878 6% 930 878 6%
FCA capital requirement(4) 5.3 4.7 12% 5.2 4.8 10% 5.2 4.8 10%
Excess capital(4) 10.6 10.8 (2)% 13.5 10.8 25% 13.5 10.8 25%
Lapse provision 4.8 5.7 (16)% 4.5 5.3 (15)% 4.5 5.3 (15)%
------ ------ ------- ------ ------ ------- ------ ------ -------
Notes:
1 Underlying Operating Profit is shown pre and post COVID-19 related net costs
2 LSL mortgage completions lending quoted includes product transfers
3 Market share excludes Product Transfers
4 2020 FCA capital requirement and excess capital
Headlines
LSL is one of the largest providers of services to mortgage
intermediaries and specialist mortgage and insurance advice to
estate agency and new build customers. The Board estimates that
PRIMIS is the UK's largest mortgage network. During 2020, PRIMIS
won multiple awards, including the Moneyfacts Awards 2020: Mortgage
Network of the Year, Mortgage Introducer Awards 2020: Mortgage
Network of the Year, AIG Quality Awards 2020: Best Crisis Response,
Mortgage Strategy Awards 2020: Best Network 300+ ARs, COVER
Excellence Awards 2020: Best Intermediary Promotion of
Protection/Health.
The importance of Financial Services to the Group continues to
increase, reflecting the Board's strategy to develop a broader and
less volatile income stream in sectors in which it has significant
experience. The Financial Services Division has enhanced its profit
and market share consistently over recent years, demonstrating
resilience and capacity to grow across a wide range of market
conditions. Over the five financial years ended 31 December 2020,
the CAGR of Underlying Operating Profit in the Financial Services
Division was 26%(1) . The Financial Services proportion of LSL's
Gross Divisional profit has increased for over 10 years running to
29% in 2020. Intermediaries continue to take the dominant share of
the mortgage market and customers continue to benefit from
impartial advice, particularly with the impact of COVID-19 on
lending criteria. The share of new residential lending sold via
intermediaries(2) continued to grow in 2020 to 76% of the market
(2019: 74%) demonstrating the continued resilience of LSL's
business model.
LSL has established itself as a leading player in the provision
of mortgage brokerage, and in 2020, LSL provided services in
relation to GBP32.6bn of mortgage completions, increasing LSL's
market share by 0.5 percentage points to 9.1% of the total purchase
and remortgage market (2019: 8.6%). LSL is also a leading player in
the provision of general and protection insurance, generating new
protection insurance policies of around GBP54m of annualised
premium in 2020.
Despite the impact of COVID-19, the Financial Services Division
delivered profit growth in H1 and H2 on both a pre and post
COVID-19 cost basis.
Summary of Financial Services businesses
LSL Financial Services businesses operate in three channels,
Intermediary Network, Direct-to-Consumer and New Build Homes.
The Intermediary Network channel comprises PRIMIS, a leading UK
Appointed Representative Network with broad UK coverage, and The
Mortgage Alliance (TMA), a Mortgage Club distributing mortgages and
financial services products to directly authorised mortgage
intermediaries. PRIMIS has a network of 2,585 independent advisers
in 930 Appointed Representative firms, and TMA has around 600
regular members. The Board believes that PRIMIS is the largest
mortgage network in the UK.
The Direct-to-Consumer channel is made up of employed and
self-employed advisers providing mortgage and protection advice in
branch and via telephony to customers of both LSL and independent
estate agency branches, through Embrace Financial Services and
Linear Financial Solutions. First2Protect provides home insurance
products for property owners, landlords and tenants. There are 308
advisers in the Direct-to- Consumer Channel.
The New Build Homes channel consists of two LSL subsidiaries,
Group First and RSC, specialising in providing mortgages and
financial services products to customers financing the purchase of
new build properties. There are 69 directly appointed advisers in
Group First and RSC providing these services via partnerships with
new build developers.
Total Financial Services Revenue generated by the Group in 2020
was GBP70.8m, being reported in the Financial Services Division
(GBP61.0m) and in the Estate Agency Division (GBP9.9m), the latter
representing a variable commission payment from Embrace Financial
Services Ltd, a subsidiary within LSL's Financial Services
Division, reflecting its role in introducing customers to Embrace
advisers.
Revenue is well diversified across the three channels. The
revenue mix by channel for 2020 and 2019 was as follows:
Total Group Financial
Services Revenue Mix
by Channel (%)
2020 2019
Intermediary
Network 44% 40%
Direct to Consumer 40% 43%
New Build Home 16% 17%
Total Revenue 100% 100%
-------------------- ----- -----
The Financial Services Division has significant scale across its
breadth of products, including mortgage products, pure protection
products and general insurance products. LSL's financial revenue is
made up of Mortgage Advice (fees paid by consumer), Mortgage
Procuration (fees paid by mortgage lenders), Protection Insurance
and Household Insurance (commission paid by insurance companies)
and Other Income (including broker fees for PRIMIS services).
The Division's revenue mix by product highlights the
significance of LSL's insurance business and its success in
arranging protection products both on a standalone basis as well as
when needed at the time of a mortgage being arranged.
There is a broadly equal split between mortgage related and
protection and insurance related revenue. The split of revenue by
type is as follows:
Total Group Financial
Services Revenue Mix
by Type (%)
Year ended 31 December
2020 2019
Mortgage Fees 42% 47%
Life & General
Insurance fees 45% 43%
Other fees 13% 10%
Total Revenue 100% 100%
----------------- ----- -----
2020 performance
LSL's total gross mortgage completions (including Product
Transfers) increased by 3% to GBP32.6bn (2019: GBP31.7bn). Gross
mortgage completions excluding Product Transfers reduced by 3% to
GBP22.1bn (2019: GBP22.8bn), in a market which UK gross mortgage
lending (excluding product transfers) fell by 9% and UK housing
transactions fell by 11%. An increasingly important activity is
advising customers switching mortgage schemes with their existing
lender ("product transfers"). LSL's product transfers increased by
17% to GBP10.5bn (2019: GBP8.9bn) as Product Transfers dominated
remortgage activity during Lockdown, supporting the generation of
recurring income.
The mix of mortgage applications between purchase and refinance
(including both remortgages and product transfers), returned to
more typical levels as the year progressed. Cases were heavily
skewed to refinance during lockdown at around 86% in April, with a
more normal 50/50 split for most of H2. The proportion of mortgage
product transfers arranged during 2020 increased to 32%, up from
28% of all LSL lending arranged in 2019.
LSL continued to be successful in attracting new appointed
representatives firms to its PRIMIS network. In the year to 31
December 2020, the number of appointed representative firms
increased by 6% to 930, and the number of advisers by 8% to 2,585.
The number of advisers has subsequently grown further to 2,681 as
at 31 March 2021, and the pipeline of new advisers had also grown
over Q1 2021. Further recruitment of new firms and advisers is
expected to support ongoing profitable growth for PRIMIS.
Despite the impact of COVID-19, the Financial Services Division
delivered profit growth in H1 and H2 on a pre and post COVID-19
cost basis. Underlying Operating Profit (post COVID-19 costs)
increased by 6% to GBP12.3m (2019: GBP11.6m). This improvement was
delivered despite the impact of the market disruption on Financial
Services' revenue, which was down 13% to GBP61.0m (2019: GBP69.8m).
The improvement in profitability reflected careful cost management
with scale efficiencies in PRIMIS, including reduced IT platform
costs, which will support LSL's profitability as we continue to
grow our financial services businesses.
Following a revenue reduction of 18% during H1, there was a
steady improvement following the end of the first national
lockdown, with H2 2020 revenues down 7% on H2 2019. Momentum grew
as the second half progressed and performance in December was
particularly strong with year-on-year revenue growth in December
2020 of 10%, as application pipelines converted strongly.
PRIMIS finished the year particularly well, with year-on-year
revenue growth in December of around 21%.
Impact of COVID-19
The impact of COVID-19 varied by channel. The Intermediary
channel was particularly resilient, with revenue down 7%
year-on-year, outperforming the overall market decline of 9%. The
independent advisers working in the PRIMIS network firms focused on
service of existing clients, working remotely from their customers
through the lockdown period. The attachment rate of Penetration of
Protection products to new mortgages written fell during the
period, as the lack of face-to-face appointments impacted
conversion, and increased proportion of Product Transfers providing
less opportunities for Protection.
The Direct-to-Consumer channel revenue was down 20%
year-on-year, reflecting the impact of COVID-19 on the residential
market, with UK transactions down 11%, and the phased return of
advisers from furlough impacted the speed of resumption of normal
productivity levels and from financial advisers largely not able to
physically work in the estate agency branches due to social
distancing requirements. Embrace Financial Services (EFS) advisers
supporting the LSL Estate Agency branches naturally saw
opportunities reduce following the closure of the Estate Agency
branches during the lockdown in Q2, resulting in fewer completions
in Q2 and a lower pipeline entering Q3. Year-on-year comparative
volumes were also impacted by the reshaping of the branch network
during Q1 2019.
New Build Home Channel revenue was down 21% year-on-year. The
overall New Build market was more heavily affected than the
second-hand market in 2020, with completions of new build homes in
the year to December 2020 down 17% compared to prior year. New
Build was particularly affected by the shutdown of development
sites in H1 and ongoing supply chain challenges during H2,
resulting in builders completing less properties. The phased return
of advisers from furlough impacted the speed of resumption of
normal productivity levels.
Total Group Financial Services Revenue
(GBPm's)
Year Ended 31 December
2020 2019 YoY
Intermediary Network 31.3 33.5 -7%
Direct to Consumer 28.2 35.4 -20%
New Build Home 11.4 14.4 -21%
Total Group FS Revenue 70.8 83.4 -15%
------------------------------ -------------- -------------- -----
Less: EA variable commission (9.9) (13.6) -27%
Total Financial Services
Division 61.0 69.8 -13%
------------------------------ -------------- -------------- -----
Technology
In 2020, the Division continued to develop Toolbox, its
proprietary software systems, including improvements to the advice
journey for both end-customers and advisers, the delivery of a
client portal supporting remote advice capability, as well as
deployment of enhanced security features and electronic identity
verification solutions. Toolbox is to be used as the platform for
the Group's "buy-and-build" joint venture with Pollen Street
Capital.
In February 2021 LSL announced the acquisition of a 60% stake in
Direct Life Quote Holdings Limited for GBP1.8m, and the business
and assets of Mortgage Gym Limited (Mortgage Gym) for GBP2.4m, as
part of its digital strategy to drive growth in Financial
Services.
The deployment of Mortgage Gym will strengthen the technology
support available to LSL and PRIMIS mortgage advisors, increasing
the efficiency of users and helping to pre-qualify leads, whilst
increasing the capability to generate leads from third party
sources. The technology is currently being piloted by LSL in the
new build market and under LSL ownership it is planned to
accelerate its deployment, enhancing the service proposition to
developers and giving LSL the opportunity to grow market share in
this sector. It is also expected to bring significant benefits to
EFS, increasing the efficiency and productivity of advisers working
with LSL and third-party estate agency offices, such as those of
The Property Franchise Group.
Direct Life Quote Holdings principal subsidiary, Direct Life
& Pension Services, has developed an advanced technology
platform that offers digital protection insurance product
recommendations to intermediaries and direct to retail customers
via an end-to-end online service through third party aggregators.
The investment in Direct Life & Pension Services will help both
PRIMIS members and LSL's directly employed advisers to increase
their sale of protection products for the benefit of clients and
customers.
Governance
The regulated nature of Financial Services highlights the
importance of effective risk management. Given the importance of
Financial Services to the Group's strategy, the Nominations
Committee has taken steps to ensure that the Board includes
directors with significant experience of operating in regulated
financial services businesses. During 2020 the independent member
of the Financial Services Oversight Committee became Chair of that
Committee, to enhance the Division's governance arrangements.
In common with other regulated businesses, LSL's Financial
Services activities require the maintenance of minimum levels of
regulatory capital, the calculation for which is based on revenue
in related activities. At the end of Q4 2020, the most recent
regulatory reporting period, the relevant businesses held total
capital of GBP18.7m, significantly ahead of the regulatory
requirement of GBP5.2m and indicative of the Group's prudent
approach to balance sheet management. This capital surplus will
support significant further growth in FCA-regulated activities.
Notes:
1 Underlying Operating Profit growth is pre COVID-19 related net costs
2 UK Finance New residential lending sold direct and via intermediaries
3 LSL mortgage completions lending quoted includes product transfers
Surveying Division
Surveying: Financials Summary H1 H2 FY
2020 2019 Var 2020 2019 Var 2020 2019 Var
P&L (GBPm)
----------------------------------------- ------ ------- -------- ------ ------ ------- ------ ------ -------
Total revenue 31.1 42.7 (27)% 46.0 43.7 5% 77.1 86.4 (11)%
Underlying Operating Profit(1)
(pre COVID-19 costs) 4.9 6.3 (23)% 13.0 10.0 30% 17.9 16.3 9%
Underlying Operating margin
( pre COVID-19 costs) 15.6% 14.8% 80bps 28.3% 22.9% 530bps 23.2% 18.9% 420bps
Underlying Operating Profit(1)
(post COVID-19 costs) 4.1 6.3 (35)% 12.1 10.0 21% 16.2 16.3 (1)%
Underlying Operating margin
(post COVID-19 costs) 13.1% 14.8% -170bps 26.3% 22.9% 340bps 21.0% 18.9% 210bps
KPIs
----------------------------------------- ------ ------- -------- ------ ------ ------- ------ ------ -------
Jobs performed (000's) 197 251 (22)% 290 257 13% 487 508 (4)%
Revenue from Private Surveys (GBPm) 0.5 0.9 (49)% 0.7 0.9 (25)% 1.1 1.8 (37)%
Income per job (GBP) 158 170 (7)% 159 170 (6)% 159 170 (7)%
Operational Surveyors Employed (FTE(2)
) 507 486 4% 513 514 0% 513 514 0%
Balance Sheet (GBPm)
----------------------------------------- ------ ------- -------- ------ ------ ------- ------ ------ -------
PI Costs Provision (7.6) (10.9) (30)% (7.0) (8.2) (14)% (7.0) (8.2) (14)%
------ ------- -------- ------ ------ ------- ------ ------ -------
Notes:
1 Underlying Operating Profit is shown pre and post COVID-19 related net costs
2 Full Time Equivalent (FTE)
Despite the significant operational impact on the Surveying
Division caused by the restrictions imposed due to COVID-19, the
financial performance was highly resilient. Service levels provided
to clients remained high and e.surv was awarded Best
Surveyor/Valuer at the 2020 Mortgage Strategy Awards.
Surveying Division revenue decreased by 11% to GBP77.1m (2019:
GBP86.4m). Revenue in the first half reduced by 27%, following a
positive revenue performance in January and February. Lockdown
restrictions prevented the Group from undertaking any physical
valuations between 23 March and 18 May. During this time, LSL
worked with lenders to rapidly increase the volumes of valuations
performed remotely.
The ability to undertake physical valuations recommenced on 18
May 2020, following which volumes quickly recovered. Revenue in H2
2020 was up 5% over the same period in 2019, reflecting both the
clearance of pipelines built up during lockdown as well as high
levels of new instructions. The recovery gained momentum as the
second half progressed, with December Surveying revenue up 25%
year-on-year. The year included the completion of a key contractual
negotiation, with the Surveying Division having been awarded an
extension to its contract to supply UK residential survey and
valuation works to a major high street bank in June 2020.
During 2020, just over 70% of the Surveying Division's revenues
were derived from its top five customers. This is broadly
consistent with the concentration of mortgage lending in the UK,
where it is estimated that the six largest lenders collectively
account for around 70% of the market. The total number of jobs
performed during the year was 486,520 (2019: 508,061), with 60%
taking place in H2 2020 (H2 2019: 51%).
Income per job in 2020 reduced to GBP159 (2019: GBP170), due to
the increased proportion of jobs undertaken remotely. Remote
valuations take less surveyor time to complete than physical
valuations, bringing capacity advantages to mitigate the lower
income per job. Remote valuations in 2020 represented 24% of all
jobs performed (2019: 7%). The percentage increased to 22% in H1
but was 100% during the period of no physical valuations between 23
March and 18 May. Over H2 remote valuations represented 26% of the
total. This partly reflected a market-wide shortage of capacity to
clear pipelines and cope with elevated demand conditions, as well
as an increase in the use of Remote Valuations by some lender
clients.
Surveying Division Underlying Operating Profit (post COVID-19
costs) of GBP16.2m was broadly in line with prior year (2019:
GBP16.3m). Underlying Operating Profit was down 35% in H1 and up
21% in H2, with an improved profit margin (post COVID-19 costs) for
2020 of 21.0% (2019: 18.9%). The margin benefited from cost
restructuring during H2 2019 and during Q1 2020, following
rationalisation of back-office administration, which yielded
annualised savings of GBP1m.
The development and retention of surveyors remains a high
priority, and success in this area facilitated the delivery of
significant valuation volumes following lockdown. The total number
of operational surveyors employed (FTE) at 31 December 2020 was
maintained at 513 (2019: 514). In 2021, the Surveying Division will
continue to focus on its recognised and highly successful graduate
programme, to alleviate the impact of capacity constraints in the
market and backfill. The pass rate for Graduates to AssocRICS
status in 2020 was 100%. In addition, the business continues to
recognise other industry bodies to provide capacity, supporting
trainees with our established mentoring programme.
At 31 December 2020, the total provision for professional
indemnity (PI) costs was GBP7.0m (2019: GBP8.2m). In 2020, the
Group continued to make positive progress in addressing historic PI
claims and there was a net GBP0.7m exceptional gain in the
year.
Estate Agency Division
Estate Agency: Financials
Summary H1 H2 FY
2020 2019 Var 2020 2019 Var 2020 2019 Var
P&L (GBPm)
----------------------------- ------ ------ ------- ------- ------- ------- ------- ------ -------
Residential Sales
Exchange Income 18.6 27.6 (33)% 30.2 30.1 0% 48.8 57.7 (15)%
Lettings Income 27.5 33.8 (19)% 31.1 33.5 (7)% 58.6 67.3 (13)%
Financial Services
Income 4.5 6.8 (33)% 5.4 6.8 (21)% 9.9 13.6 (27)%
Franchise income 0.7 1.0 (31)% 0.9 1.3 (25)% 1.6 2.3 (28)%
Conveyancing & Other(1) 2.5 5.5 (55)% 3.5 3.4 4% 5.9 8.8 (33)%
Asset Management 2.0 2.5 (20)% 1.8 2.8 (36)% 3.8 5.3 (29)%
Total revenue 55.8 77.1 (28)% 72.9 77.8 (6)% 128.7 154.9 (17)%
Underlying Operating
Profit(2)
(pre COVID-19 costs) 4.1 4.0 3% 11.4 10.4 9% 15.5 14.5 8%
Underlying Operating
margin
(pre COVID-19 costs) 7.4% 5.2% 220bps 15.6% 13.4% 220bps 12.1% 9.3% 280bps
Underlying Operating
Profit(2)
(post COVID-19 costs) 2.4 4.0 (40)% 9.7 10.4 (7)% 12.1 14.5 (16)%
Underlying Operating
margin
(post COVID-19 costs) 4.3% 5.2% -90bps 13.3% 13.4% -20bps 9.4% 9.3% 10bps
KPIs
----------------------------- ------ ------ ------- ------- ------- ------- ------- ------ -------
Exchange units -owned
(000's) 5.0 8.5 (41)% 7.9 8.2 (3)% 12.9 16.7 (23)%
Managed Properties
- owned (000's) 24.8 25.1 (1)% 24.8 25.0 (1)% 24.8 25.0 (1)%
Average Residential
Sales Exchange
Fee per unit (GBP) 3,730 3,246 15% 3,809 3,666 4% 3,778 3,452 9%
Notes:
1 'Other income' includes conveyancing services, EPCs, Home
Reports, utilities and other products and services to clients of
the branch network.
2 Underlying Operating Profit is shown pre and post COVID-19 related net costs
Following a strong start to the year, the pandemic resulted in
the closure of the branch network, with H2 experiencing a
significant increase in housing market activity. The Estate Agency
Division responded with agility to the operational challenges
caused by COVID-19 and we are exceptionally well placed to benefit
from the current strong market, having increased our market share
since the end of the lockdown.
Estate Agency Underlying Operating Profit (post COVID-19 costs)
was GBP12.1m (2019: GBP14.5m), with the impact of COVID-19 and the
Tenant Fee ban (June 2019) offsetting the benefit of the branch
networks rationalisation in the early part of 2019. After COVID-19
costs are excluded, Underlying Operating Profit was GBP15.5m. After
COVID-19 costs, H1 profit was down 40% to GBP2.4m (H1 2019:
GBP4.0m), recovering in H2 to just 7% down to GBP9.7m (H2 2019:
10.4m) as the market opened, with residential exchange pipelines at
31 December 2020, up 65% year-on-year.
Total Estate Agency Division revenue for 2020 decreased by 17%
to GBP128.7m (2019: GBP154.9m). Adjusting for the closure of the
Your Move and Reeds Rains branches during Q1 2019, like-for-like
total revenue decreased by 14% compared to 2019. Revenues for H1
2020 decreased by 28% in comparison to the prior year, reflecting
the impact of the national lockdown on all revenue streams. The
recovery in revenues post the national lockdown resulted in H2 2020
revenue performance down just 6% year-on-year, reflecting high
levels of Residential Sales exchanges. In Q4 2020, revenues were 1%
up year-on-year as the significant pipeline built during the period
following lockdown began to exchange. This steady growth can be
seen in December revenues which were up 7% year-on-year. This
pattern continued into 2021, with the first quarter showing strong
growth over both 2019 and 2020.
Over the period March 2020 to May 2020, the proportion of Estate
Agency FTE employees placed on furlough peaked at 77%. Once
restrictions relaxed after the national lockdown, the Group rapidly
reopened its branch networks. The number of FTE employees on
furlough reduced to 35% by the end of June 2020 and was just 2% by
the end of September 2020, with further reductions as the year
progressed.
Although COVID-19 materially impacted the London property
market, the market recovered extremely strongly following the
easing of restrictions. Marsh & Parsons' Residential Sales
exchange income was down 11% year-on-year in H1, before recovering
strongly to 4% ahead in H2. Lettings income was impacted during the
year by lower demand and rents, particularly in Prime Central
London. However, this has recovered strongly in recent months. A
new Financial Services offering was launched by Marsh & Parsons
at the beginning of 2020, which is expected to contribute
positively to profits in 2021.
Residential Sales
Residential Sales exchange income decreased by 15% to GBP48.8m
(2019: GBP57.7m). Adjusting for the reduced number of branches
following the planned reshaping of the network in Q1 2019, total
like-for-like Residential Sales exchange income decreased by 12%,
broadly in line with the overall market decline on a national
level. Encouragingly, at a local level, in the locations traded by
LSL, market share slightly increased in H2, a pattern which has
continued in 2021.
Residential Sales exchange income was down by 33% in H1 2020,
with low exchange volumes in the immediate lead up to and during
the first national lockdown between 23 March and 13 May 2020,
throughout which time the branch network was required to close.
LSL's Estate Agency businesses responded quickly to the easing of
restrictions, and by the end of June 2020, all but five branches
had reopened. Residential Sales exchange activity increased
steadily post the national lockdown, with H2 2020 revenues in line
with the prior year. Q4 2020 revenues were up 16% year-on-year,
with exchanged units up 14%.
The significant increase in the number of house sales agreed
following the end of the national lockdown in May 2020 gave rise to
significant pressures in parts of the housing chain, notably a
market-wide shortage in conveyancing capacity. This has meant that
the average time taken to exchange and complete on agreed sales has
increased in the market generally.
The Residential Sales exchange pipeline grew materially during
this period. At the end of December 2020, this pipeline was more
than 65% above the same point in 2019. There was no evidence of any
material increase in Residential Sales fall-through trends in the
later part of 2020, nor in 2021 to date.
Average residential sales exchange fees per unit increased by 9%
to GBP3,778 (2019: GBP3,452), reflecting the impact of the reshaped
keystone branch network and the closure of more marginal, sub-scale
branches.
Lettings
Total Lettings income decreased by 13% to GBP57.7m (2019:
GBP67.3m). Adjusting for the planned reduction in branches and for
the Tenant Fee ban introduced in June 2019, total like-for-like
lettings income decreased by 9%, the recurring nature providing
significant resilience to market conditions. As a result, Lettings
income increased to 46% of total Estate Agency income (2019: 43%),
despite the impact of the Tenant Fee ban.
Lettings income was, however, affected by the low volume of
buy-to-let properties coming to market, a suppressed student market
during the national lockdown and an excess of lettings stock in
Prime Central London, where fewer tourists and corporate lets
caused more properties to be released onto the long-term lettings
market, creating pressure on rents and added competition for
tenants. The total number of managed properties at 31 December 2020
was 24,804, broadly in line with the same date in 2019.
Financial Services Income
As noted above, the Estate Agency Division receives a variable
commission payment from Embrace Financial Services Ltd, a
subsidiary within LSL's Financial Services Division, reflecting its
role in introducing customers to EFS advisers. This income was down
27% to GBP9.9m (2019: GBP13.6m), reflecting the impact of COVID-19
in reducing branch network generated leads and lower productivity
from financial advisers not able to physically work in the estate
agency branches. The arrangements between the Estate Agency
division and Embrace are being reviewed to align them more closely
with market rates based on an arm's length relationship. This is
likely to result in lower payments from Embrace to Estate Agency,
and a move in profits from the Estate Agency Division to the
Financial Services Division. More information in respect of the
impact of this will be provided at the time of publication of LSL's
Interim Results for 2021.
Franchise Income
Franchise income was down 28% to GBP1.6m in 2020 (2019: GBP2.3m)
largely reflecting lower royalties received from franchisees
relating to residential exchange sales resulting from the
market-wide factors described above.
Conveyancing and other income
Conveyancing and other income fell by 31% to GBP5.9m (2019:
GBP8.8m), in large part due to lower Residential Sales transaction
volumes and lower productivity brought about by the need for home
working following the return from lockdown. H1 was down 55%, with a
recovery in H2 (up 4%) reflecting the conveyancing income earned on
increasing Residential Sales Income.
Asset Management
Asset Management revenues were down by 29% for the year to
GBP3.8m (2019: GBP5.3m), a smaller reduction than the overall
reduction in repossessions which were down by 67%. The number of
repossessions was much lower than in previous years as lenders
exercised forbearance to protect customers whose personal and
financial situation was impacted by COVID-19. This was reinforced
strongly in the FCA's COVID-19 guidance, in effect since 19 March
2020, that lenders should not enforce repossessions before 1 April
2021, except in exceptional circumstances.
Branch numbers
Breakdown of LSL's Estate Agency branches as at 31 December 2020
and 31 December 2019:
Total Total
Owned Franchise 2020 2019
---------------- ----- ----------- ----- -----
Your Move 89 79 168 169
Reeds Rains 56 49 105 105
---------------- ----- ----------- ----- -----
Sub total 145 128 273 274
LSLi 51 2 53 59
Marsh & Parsons 30 0 30 30
---------------- ----- ----------- ----- -----
Total 226 130 356 363
---------------- ----- ----------- ----- -----
The total number of Estate Agency branches reduced by seven in
2020, following the net reduction of five owned branches, including
the closure of six LSLi owned branches, the opening of one Reeds
Rains branch, and the closure of two franchise branches.
Estate Agency Awards and Achievements 2020
-- Reeds Rains: Best Estate Agent Guide 2021 (*): Best Estate
Agency Guide Award - Best Large Lettings Agency in the UK,
Winner.
-- Your Move: USwitch Website Speed League Survey: Overall Best Property Website.
(*) As judged and announced in 2020.
Financial Review
Income Statement
Group Revenue
Revenue decreased by 14.3% to GBP266.7m (2019: GBP311.1m),
impacted by COVID-19, the closure in February 2019 of 164 estate
agency branches to reshape the Your Move and Reeds Rains networks,
and the tenant fee ban introduced in June 2019. H1 Revenue (down
25% year-on-year) was particularly impacted during the first
lockdown by the mandated closure of the Estate Agency branches, and
with no physical valuations permitted to take place, recovering in
H2 (down 3% year-on-year) after the reopening of the property
market following the first lockdown, with strong activity levels
supported by the reduced rates of Stamp Duty Land Tax announced in
July 2020.
Total operating expenditure
Total operating expenses decreased by 15.5% to GBP232.9m (2019:
GBP275.5m). This reduction reflects Government support, reduced
payments whilst staff were on furlough, the cancellation of all
executive director bonuses, severe restrictions on all other senior
management bonuses which were limited to a maximum of 5%, reduced
sales commissions on lower revenues during the year, the full-year
cost benefit of reshaping the Your Move and Reeds Rains branch
networks in 2019 and savings from a back-office restructure in
Surveying.
Further savings resulted from the impact of COVID-19 including
reduced marketing expenditure, and office and travel expenses, and
other reductions in non-essential expenditure.
Central (unallocated) costs were slightly lower at GBP5.3m
(2019: GBP5.4m). Executive director bonuses were not paid for 2020
(2019: GBP0.7m).
Other operating income
Other income, relating to rental income, was GBP0.8m (2019:
GBP0.9m), with the decrease resulting from the Group not renewing
branch and office head leases reaching the end of their term.
Gain on sale of property, plant, and equipment
A gain on sale of GBP0.02m (2019: GBP0.1m) resulted from the
disposal of one commercial property, for consideration of
GBP0.1m.
Income from joint ventures and associates
Income from joint ventures and associates was GBP0.5m (2019:
GBP0.4m). The share of profit after tax in joint venture holdings
in LMS and TMG of GBP1.3m (2019: GBP1.4m) is included in the Estate
Agency Division Underlying Operating Profit, with the GBP0.8m share
of losses after tax from the associate holding in Mortgage Gym
included in the Financial Services Division Underlying Operating
Profit (2019: GBP0.9m loss).
Share-based payments
The share-based payment charge of GBP0.02m (2019: GBP0.3m)
consists of a charge in the period of GBP1.2m, offset by the lapse
of the 2016 SAYE scheme, the partial lapse of the 2018 LTIP scheme
and adjustments for leavers and options exercised in the
period.
Amortisation of intangible assets
The amortisation charge for 2020 was GBP5.4m (2019: GBP5.8m).
The decrease was the result of a number of lettings books purchased
by the Estate Agency Division reaching full amortisation during the
year.
Exceptional items
The exceptional gain of GBP0.7m (2019: GBP2.5m) relates to a
release in the PI Costs provision, following reassessment of
potential liability for future years. The PI Costs provision at 31
December 2020 fell to GBP7.0m (2019: GBP8.2m).
Exceptional costs of GBP7.1m (2019: GBP15.7m) comprise GBP2.4m
of aborted deals costs, in relation to the potential all-share
combination between LSL and Countrywide plc, which did not result
in an offer by LSL, GBP2.7m of transformation costs, relating
mainly to restructuring the Surveying back office to reduce ongoing
overheads, and a GBP2.0m write down of the carrying value of the
investment in Mortgage Gym.
Contingent consideration
The credit to the income statement in 2020 of GBP0.5m (2019:
GBP2.1m), mainly reflected the impact of COVID-19 on the new homes
sales market, and consequently a reduction in the average earnings
used in calculating the contingent consideration provision for RSC
and Group First.
COVID-19
The Group received GBP15.7m from the CJRS, which it used to pay
salaries for colleagues placed on furlough during the year. The
Group also received property grants of GBP2.6m and business rates
relief of GBP2.4m.
The Group recognised GBP6.4m of COVID-19 related costs during
the year. These comprised GBP2.6m of employee costs relating to
holiday accruals built up during the national lockdown and
redundancy costs, as well as GBP3.0m for property and other asset
costs incurred whilst the national lockdown was in place, net of
property grants received, and GBP0.8m of other costs including
PPE.
Group Underlying Operating Profit(2) (post COVID-19 costs) was
GBP35.2m (2019: GBP37.0m) and Group Underlying Operating Profit
(pre COVID-19 costs) was GBP41.5m (2019: GBP37.0m).
Group Operating Profit
On a statutory basis, Group operating profit increased 21.1% to
GBP23.9m (2019: GBP19.7m). This increase was largely driven by a
reduction in exceptional costs during the year, offset in part by a
reduction in exceptional gains and contingent consideration related
credits.
Net financial costs
Net financial costs amounted to GBP3.0m (2019: GBP3.7m) and
related principally to interest and fees on the RCF and the
unwinding of the IFRS 16 lease liability. Interest and fees
relating to the RCF of GBP1.2m (2019: GBP1.6m) were reduced by the
significantly lower average net debt position of GBP22.9m during
2020 in comparison to the prior year which was GBP52.5m. Finance
costs of GBP1.6m in 2020 (2019: GBP1.7m) related to the unwinding
of the IFRS 16 lease liability. Finance income of GBP0.1m (2019:
GBPnil) related to loan note interest.
Taxation
A change to the main UK corporation tax rate was announced in
the UK Government's Budget on 11 March 2020 and substantively
enacted on 17 March 2020. This headline rate applicable from 1
April 2020 remained at 19%, rather than the previously enacted
reduction to 17%. Deferred tax is therefore provided at 19% (2019:
17%). Corporation tax is recognised at the headline UK corporation
tax rate of 19% (2019: 19%).
The effective rate of tax for the year was 22.0% (2019: 19.0%).
The effective tax rate for 2020 was higher than the headline UK tax
rate for various reasons including: the depreciation of assets
which do not qualify for capital allowances; the impairment of
investments in joint ventures and associates; and the upward
revaluation of deferred tax liabilities.
Deferred tax credited directly to other comprehensive income was
GBP0.0m (2019: GBP0.1m). Income tax credited directly to the
share-based payment reserve was GBP0.0m (2019: GBP0.0m).
In 2020, corporation tax payments of GBP6.1m (2019: GBP5.5m)
were made, which was greater than the corporation tax charge for
the year of GBP5.1m (2019: GBP4.0m). This was the result of the
change in the timings of corporation tax payments, which require
corporation tax liabilities to be settled in the year in which they
accrue. As 2020 is the transitional year for this change, the Group
has been required to make tax payments in respect of the full
estimated current year tax liability, as well as the final
instalments in respect of the prior period.
Basic and Adjusted Basic Earnings Per Share
The Basic Earnings Per Share(3) was 15.9 pence (2019: 12.6
pence). The Adjusted Basic Earnings Per Share(3) was 31.9 pence
(2019: 28.0 pence), an increase of 13.9%. This is higher than the
increase in Group Underlying Operating Profit, as a result of the
lower net financial costs used in arriving at Adjusted profit after
tax.
Balance Sheet
Goodwill
The carrying value of goodwill is GBP159.9m, which has been
assessed using models of projected earnings, with no change
required to the carrying value (2019: GBP159.9m). This reflects the
continued positive cash generating potential of the Group's cash
generating units.
Other intangible assets and property, plant and equipment
Total capital expenditure in the year amounted to GBP4.1m (2019:
GBP4.9m). The reduction was mainly due to cash conservation
measures taken during the lockdown, which focused capital spend on
essential projects. LSL continued to invest in technology and the
capital expenditure in the year included GBP1.8m (2019: GBP1.3m)
for further development of the Toolbox platform in the Financial
Services divisions and investment by the Estate Agency division in
property software.
Mortgage Gym
LSL has been a strategic investor in Mortgage Gym since July
2018, which has developed an innovative digital platform that
confirms mortgage eligibility within 60 seconds, matching borrowers
with lenders.
During February 2021, Mortgage Gym entered administration. In
February 2021, LSL received payment in full settlement of its
GBP2.2m of loan notes and accrued loan note interest from Mortgage
Gym's administrators. LSL has written down its investment in
Mortgage Gym to GBPnil as at 31 December 2020, with the write down
recognised in exceptional items. LSL acquired the trade and assets
of Mortgage Gym from the administrators for a consideration of
GBP2.4m.
Mortgage Gym will strengthen the technology support available to
LSL and PRIMIS mortgage advisors, increasing the efficiency of
users and help to pre-qualify leads, whilst enhancing the Group's
ability to generate leads from third party sources. LSL is
currently piloting the technology in the new build market and under
the Group's ownership its deployment will be accelerated, enhancing
the service proposition to developers and giving LSL the
opportunity to grow market share in this sector. It will also bring
significant benefits to Embrace Financial Services, increasing the
efficiency and productivity of advisers working with LSL and
third-party estate agency offices.
Financial assets
LSL holds financial assets of GBP9.6m (2019: GBP9.3m,)
comprising convertible loan notes and investment in equity
instruments. The increase in the year was substantially due to the
net impact of the issuance and part conversion of loan notes to
Mortgage Gym.
LSL holds a small number of investments in unlisted companies.
The largest investment is an 8.8% shareholding in Yopa Property
Limited, a UK-based online hybrid estate agent. The carrying value
of the Group's investment in Yopa has been assessed, including a
review of its latest financial performance, and the valuation
remains unchanged from 2019 at GBP6.5m (2019: GBP6.5m).
Joint ventures
The Group has two joint ventures: a 33.3% (2019: 33.3%) interest
in TM Group, whose principal activity is to provide property
searches, and a 50% (2019: 50%) interest in LMS, whose principal
activity is to provide conveyancing panel management services. LMS
and TM Group are held on the balance sheet at GBP9.1m and GBP2.3m
respectively (2019: GBP8.8m and GBP1.5m). Both joint ventures have
resilient business models delivering resilient performances in
2020, despite the impact of COVID-19.
Financial Liabilities
Bank facilities / Net Bank Debt / Liquidity
At 31 December 2020, Net Bank Debt(3) was at a historic low of
GBP1.6m (2019: GBP41.9m). The resilient performance during 2020
demonstrated the underlying strength of the business and its
diversified revenue streams. Stress testing carried out on entry to
lockdown assuming significant market stress throughout 2020,
indicated the Group would retain sufficient liquidity throughout
the year. Careful cash management, with regular stress testing
avoided the need for a full RCF draw-down, equity raise, or
requirement to request a variation to bank covenants. Adjusting for
COVID-19 related payment deferrals, mainly in relation to tax
payments due as agreed with HMRC, underlying net Bank Debt at 31
December 2020 was about GBP17m.
Cash preservation measures taken included reductions in Capex
and non-essential expenditure, annual pay award cancelled, no
payment of bonuses to Executive directors and severe restrictions
on all senior management annual bonuses which were capped at 5%,
and payment deferrals negotiated. Shareholders did not receive a
final dividend for 2019, nor any dividend relating to 2020, which
together saved GBP20.5m had dividends been paid in line with the
Board's previously policy. Support from the UK Government was
received in the form of CJRS (GBP15.7m) and rates grants
(GBP2.6m).
On 24 February 2021, LSL announced a new banking facility,
providing the Group with balance sheet flexibility to take
advantage of growth opportunities, particularly in financial
services. A GBP90 million committed revolving credit facility, with
a maturity date of May 2024, arranged on competitive terms,
replaced the previous GBP100m facility that was due to mature in
May 2022.
In extending the banking facility, the Board took the
opportunity to review the Group's borrowing requirements in light
of its strong cash generation, and the Group's reduced reliance on
the housing market, reducing the size of the committed facility and
therefore the costs associated with it. To provide further
flexibility to support growth, the facility includes a GBP30m
accordion, to be requested by LSL at any time, subject to bank
approval.
The new facility is provided by Barclays Bank PLC and Santander
UK Plc, who are two long-standing banking partners, alongside
NatWest Bank plc, who we welcomed to the banking syndicate. LSL
already has a strong and long-standing relationship with NatWest
Bank plc, through its Financial Services and Surveying
Divisions.
Shareholders' funds amounted to GBP157.8m (2019: GBP141.2m),
with balance sheet gearing of 1.0% (2019: 29.7%). The 2020 gearing
level(4) was 0.03 times Group Adjusted EBITDA(5) (2019: 0.8 times).
Adjusting for the impact of IFRS 16 Leases, 2020 gearing was 0.03
times (2019: 1.0 times).
Deferred and contingent consideration
Within financial liabilities, LSL has GBP0.1m (2019: GBP0.1m) of
deferred consideration and GBP5.4m (2019: GBP5.8m) of contingent
consideration. The contingent consideration relates primarily to
the estimated cost of acquiring the remaining shares in Group First
(GBP1.5m for the remaining 5%) and RSC (GBP3.7m for the remaining
40%).
Provisions for liabilities:
Professional indemnity (PI) claim provision
At 31 December 2020, the total provision for historic PI Costs
was GBP7.0m (2019: GBP8.2m). In 2020, the Group continued to make
progress in addressing historic claims and there was a net GBP0.7m
exceptional gain. The impact of COVID-19 has slowed the rate of
progress in reducing the overall PI liability and the number of PI
valuation cases outstanding compared to previous years.
Net assets
The Group's net assets as at 31 December 2020 were GBP157.8m
(2019: GBP141.2m).
Statement of Cash-flows
The Group generated cash from operations of GBP66.3m (2019:
GBP38.8m) at a cash-flow conversion(6) rate of 159% (2019: 105%).
The increase in conversion from 2019 was a result of both the
increase in trade and other payables of GBP13.6m (2019: decrease of
GBP6.2m) and a decrease in trade and other receivables of GBP8.6m
(2019: increase of GBP5.5m), as well as GBP18.3m received from the
Government. The trade and other payables increase, was largely due
to COVID-19 related payment deferrals, mainly in relation to tax
payments as agreed with HMRC. The reduction to trade and other
receivables, was the result of higher collections during December
2020. Provisions decreased by GBP1.5m (2019: decrease of GBP3.9m),
due to the positive progress in addressing historic PI claims.
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 this Report.
International Financial Reporting Standards (IFRS)
The Financial Statements have been prepared in accordance with
the requirements of the Companies Act 2006 and International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No. 1606/2002 as it applies in the EU.
Notes:
(1) Group Underlying Operating Profit is before exceptional
costs, contingent consideration, amortisation of intangible assets
and share-based payments (as defined in Note 6 to the Financial
Statements)
(2) Refer to Note 6 to the Financial Statements
(3) Refer to Note 11 to the Financial Statements for the
calculation
(4) Operational gearing is defined as Net Bank Debt divided by
Group Adjusted EBITDA(5)
(5) Group Adjusted EBITDA is Group Underlying Operating Profit
plus depreciation on property, plant and equipment (as defined in
Note 5 to the Financial Statements)
(6) Cash-flow conversion is defined as cash-flow from operations
(pre PI and exceptionals) divided by Group Underlying Operating
Profit
Group Income Statement
for the year ended 31 December 2020
2020 2019
Continuing Operations Note GBP'000 GBP'000
---------- ----------
3,
Revenue 4 266,742 311,073
Operating expenditure:
Employee and subcontractor costs (162,455) (194,207)
Establishment costs (9,528) (10,367)
Depreciation on property, plant and equipment (13,929) (14,842)
Other operating costs (46,938) (56,098)
---------- ----------
(232,850) (275,514)
Other operating income 783 887
Gain on sale of property, plant and equipment 15 148
Income from joint ventures and associates 493 441
Share-based payments (18) (312)
Amortisation of intangible assets (5,395) (5,786)
Exceptional gains 7 674 2,487
Exceptional costs 7 (7,076) (15,730)
Contingent consideration 544 2,054
---------- ----------
Group operating profit 23,912 19,748
Finance costs (3,134) (3,744)
Finance Income 144 10
Net financial costs (2,990) (3,734)
---------- ----------
Profit before tax 20,922 16,014
Taxation charge 9 (4,596) (3,045)
Profit before tax 16,326 12,969
---------- ----------
Earnings per share expressed in pence per share:
Basic 6 15.9 12.6
Diluted 6 15.7 12.6
Group Statement of Comprehensive Income
for the year ended 31(st) December 2020
2020 2019
GBP'000 GBP'000
----------- -------
Profit for the period 16,326 12,969
----------- -------
Items not to be reclassified to profit and loss
in subsequent periods:
Revaluation of financial assets not recycled
through income statement - (3,558)
----------- -------
- (3,558)
Total other comprehensive income / (loss) for
the year, net of tax - (3,558)
----------- -------
Total comprehensive income, net of tax 16,326 9,411
----------- -------
Group Balance Sheet
as at 31 December 2020
2020 2019
Note GBP'000 GBP'000
---------- ----------
Non-current assets
Goodwill 159,863 159,863
Other intangible assets 27,894 30,906
Property, plant and equipment 42,741 49,570
Financial assets 9,561 9,326
Investments in joint ventures and associates 11,406 12,958
Contract assets 433 686
---------- ----------
Total non-current assets 251,898 263,309
---------- ----------
Current assets
Trade and other receivables 28,438 34,391
Contract assets 253 253
Current tax asset 184 -
Cash and cash equivalents 11,443 -
----------
Total current assets 40,318 34,644
---------- ----------
Total assets 292,216 297,953
---------- ----------
Current liabilities
Financial liabilities (12,466) (11,113)
Trade and other payables 10 (72,936) (60,007)
Current tax liabilities - (1,209)
Provisions for liabilities (2,998) (3,575)
---------- ----------
Total current liabilities (88,400) (75,904)
---------- ----------
Non-current liabilities
Financial liabilities (40,060) (73,951)
Deferred tax liability (1,822) (1,805)
Provisions for liabilities (4,180) (5,077)
---------- ----------
Total non-current liabilities (46,062) (80,833)
---------- ----------
Total Liabilities (134,462) (156,737)
---------- ----------
Net assets 157,754 141,216
---------- ----------
Equity
Share capital 210 208
Share premium account 5,629 5,629
Share-based payment reserve 3,942 4,429
Shares held by EBT (5,012) (5,224)
Fair value reserve (13,584) (13,584)
Retained earnings 166,569 149,758
---------- ----------
Total equity 157,754 141,216
---------- ----------
Group Cash Flow Statement
for the year ended 31 December 2020
2020 2019
Note GBP'000 GBP'000
--------- ---------
Profit before tax 20,922 16,014
Adjustments for:
Exceptional operating items and contingent
consideration 5,857 11,189
Depreciation of tangible assets 13,929 14,842
Amortisation of intangible assets 5,395 5,786
Share-based payments 18 312
Profit on disposal of fixed assets (15) (148)
Profit from joint ventures (493) (441)
Finance income (144) (10)
Finance costs 3,134 3,744
Operating cash flows before movements in working
capital 48,603 51,288
--------- ---------
Movements in working capital
Decrease in trade and other receivables 8,553 5,462
Increase / (decrease) in trade and other payables 13,606 (6,181)
Decrease in provisions (1,474) (3,908)
20,685 (4,627)
--------- ---------
Cash generated from operations 69,288 46,661
Interest paid (2,581) (3,289)
Income taxes paid (6,093) (5,355)
Exceptional costs paid (7,311) (8,799)
Net cash generated from operating activities 53,303 29,218
--------- ---------
Cash-flows used in investing activities
Acquisitions of subsidiaries and other businesses (293) (2,711)
Payment of contingent consideration (169) (7,890)
Investment in financial assets (418) (2,783)
Cash received on sale of financial assets - 1,765
Purchase of property, plant and equipment and
intangible assets (4,050) (4,892)
Proceeds from sale of property, plant and equipment 138 367
Net cash (expended) on investing activities (4,792) (16,144)
--------- ---------
(Repayment) / drawdown of loans (28,883) 7,383
Payment of deferred consideration (80) (2,009)
Payments of lease liabilities (8,304) (9,761)
Receipt of lease Income 23 76
Proceeds from the exercise of share options 176 26
Dividends paid - (11,194)
Net cash expended in financing activities (37,068) (15,479)
--------- ---------
Net increase / (decrease) in cash and cash
equivalents 11,443 (2,405)
--------- ---------
Cash and cash equivalents at the end of the
year 11,443 -
--------- ---------
Group Statement of changes in equity
for the year ended 31 December 2020
Share Share- based
Share premium payment Shares held Fair value Retained Total
capital account reserve by EBT reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2020 208 5,629 4,429 (5,224) (13,584) 149,758 141,216
Profit for the
year - - - - - 16,326 16,326
Total
comprehensive
income for
the year - - - - - 16,326 16,326
Issued share
capital in
the year 2 - - - - - 2
Exercise of
options - - (80) 212 - 44 176
Share-based
payments - - (423) - - 441 18
Tax on share
based
payments - - 16 - - - 16
At 31 December
2020 210 5,629 3,942 (5,012) (13,584) 166,569 157,754
---------- ------------- ------------- ------------- ------------- -------------- ---------
During the year ended 31 December 2020, the Trust acquired
167,083 LSL Shares. During the period, 60,565 share options were
exercised relating to LSL's various share option schemes resulting
in the Shares being sold by the Trust. LSL received GBP176,000 on
exercise of these options.
Group Statement of changes in equity
for the year ended 31 December 2019
Share Share- based
Share premium payment Shares held Fair value Retained Total
capital account reserve by EBT reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2019 208 5,629 4,129 (5,261) (11,727) 149,615 142,593
Adjustment on
initial
application
of IFRS 16 - - - - - 68 68
Revised
opening
balance 208 5,629 4,129 (5,261) (11,727) 149,683 142,661
Other
comprehensive
income for the
year
Revaluation of
financial
assets - - - - (3,558) - (3,558)
Disposal of
financial
assets - - - - 1,701 (1,701) -
Profit for the
year - - - - - 12,969 12,969
Total
comprehensive
(loss) /
income for
the year - - - - (1,857) 11,268 9,411
Exercise of
options - - (12) 37 - 1 26
Share-based
payments - - 312 - - - 312
Dividend
payment - - - - - (11,194) (11,194)
At 31 December
2019 208 5,629 4,429 (5,224) (13,584) 149,758 141,216
---------- ------------- ------------- ------------- ------------- -------------- ---------
During the year ended 31 December 2019, the Trust acquired nil
LSL Shares. During the period, 10,672 share options were exercised
relating to LSL's various share option schemes resulting in the
Shares being sold by the Trust. LSL received GBP26,000 on exercise
of these options.
Notes to the Preliminary Results Announcement
The financial information in this Preliminary Results
Announcement does not constitute LSL's statutory financial
statements for the year ended 31 December 2020 but has been
extracted from the Financial Statements included in Annual Report
and Accounts 2020 and as such, does not contain all information
required to be disclosed in the financial statements prepared in
accordance with IFRS.
Statutory financial statements for this year will be filed
following the 2021 AGM and will be available on LSL's website:
lslps.co.uk. The auditors have reported on these Financial
Statements. Their report was unqualified and did not contain a
statement under section 498 (2), (3) or (4) of the Companies Act
2006.
1. Directors' responsibility statement
Each of the current Directors confirms that, to the best of
their knowledge, the Financial Statements, prepared in accordance
with IFRS as adopted by EU standards, give a fair, balanced and
understandable view of the assets, liabilities, financial position
and profit or loss of the issuer and the undertakings included in
the consolidation taken as a whole; and the Directors' Report
includes a fair review of the development and performance of the
business and the position of the issuer and the undertakings
included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they
face.
2. Basis of preparation
The Group Financial Statements have been prepared on a going
concern basis and on a historical cost basis, except for certain
debt and equity financial assets that have been measured at fair
value. The accounting policies applied by the Group in these
consolidated preliminary results are the same as those applied by
the Group in the LSL annual Financial Statements for the year ended
31(st) December 2019. The Group's Financial Statements are
presented in pound sterling and all values are rounded to the
nearest thousand pounds (GBP'000) except when otherwise
indicated.
Going Concern
The Directors have considered the Group's current and future
prospects, risks and uncertainties set out in the risk management
objectives and policies, and its availability of financing, and are
satisfied that the Group can continue to pay its liabilities as
they fall due for the period to 30 April 2022. For this reason, the
Directors continue to adopt the going concern basis of preparation
for these financial statements. Further detailed information is
provided in the going concern statement in the Directors' Report in
the Annual Report and Accounts 2020.
3. Revenue
The Group's operations and main revenue streams are those
described in the latest Annual Financial Statements.
Disaggregation of Revenue
Set out below is the disaggregation of the Group's revenue from
contracts with customers:
Year ended 31 December 2020
Surveying
and Residential
Financial Valuation Sales Asset
Services Services exchange Lettings Management Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Timing of
revenue
recognition
Services
transferred
at a point
in
time 70,845 77,125 48,821 29,211 2,602 7,592 236,196
Services
transferred
over time - - - 29,390 1,156 - 30,546
------------- ------------- ---------------- ------------- --------------- ------------ ------------
Total
revenue
from
contracts
with
customers 70,845 77,125 48,821 58,601 3,758 7,592 266,742
------------- ------------- ---------------- ------------- --------------- ------------ ------------
Year ended 31 December 2019
Surveying
and Residential
Financial Valuation Sales Asset
Services Services exchange Lettings Management Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Timing of
revenue
recognition
Services
transferred
at a point
in time 83,353 86,358 57,676 37,782 4,311 11,098 280,578
Services
transferred
over time - - - 29,535 960 - 30,495
------------- ------------- ---------------- ------------- --------------- ------------ ------------
Total
revenue
from
contracts
with
customers 83,353 86,358 57,676 67,317 5,271 11,098 311,073
------------- ------------- ---------------- ------------- --------------- ------------ ------------
2020 2019
GBP'000 GBP'000
Revenue from services 266,742 311,073
------------ ------------
Operating revenue 266,742 311,073
------------ ------------
Rental income 783 887
Other operating income 783 887
------------ ------------
Total revenue 267,525 311,960
------------ ------------
4. Segment analysis of revenue and operating profit
LSL reports three segments: Financial Services; Surveying and
Valuation Services; and Estate Agency:
-- The Financial Services segment arranges mortgages for a
number of lenders and arranges pure protection and general
insurance policies for a panel of insurance companies. Embrace
Financial Services and First2Protect, subsidiaries within the
Financial Services Division, make a commercially agreed introducers
fee to the Estate Agency Division;
-- The Surveying and Valuation Services segment provides a
valuations and professional surveying service of residential
properties to various lenders and individual customers.
-- The Estate Agency segment provides services related to the
sale and letting of residential properties. It operates a network
of high street branches. As part of this process, the Estate Agency
Division also provides marketing and arranges conveyancing
services. In addition, it provides repossession and asset
management services to a range of lenders. Embrace Financial
Services and First2Protect, subsidiaries within the Financial
Services Division, make a commercially agreed introducers fee to
the Estate Agency Division.
Operating segments
The Management Team monitors the operating results of its
business units separately for the purpose of making decisions about
resource allocation and performance assessment. Segment performance
is evaluated based on operating profit or loss which in certain
respects, as explained in the table below, is measured differently
from operating profit or loss in the Group Financial Statements.
Head Office costs, Group financing (including finance costs and
finance income) and income taxes are managed on a Group basis and
are not allocated to operating segments.
Reportable segments
The following tables presents revenue and profit information
regarding the Group's operating segments for the financial year
ended 31 December 2020 and the financial year ended 31 December
2019.
Year ended 31 December 2020
Surveying
Financial and Valuation Estate
Services Services Agency Unallocated Total
Income Statement information GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- ---------------- ---------- ------------ ----------
Revenue from external
customers 70,845 77,125 118,772 - 266,742
Introducer's fee (9,889) - 9,889 - -
----------- ---------------- ---------- ------------ ----------
Total revenue 60,956 77,125 128,661 - 266,742
----------- ---------------- ---------- ------------ ----------
Segmental result:
- Group Underlying
Operating Profit pre
COVID-19 costs 13,451 17,871 15,554 (5,335) 41,541
- Group Underlying Operating
Profit post COVID-19
costs 12,287 16,193 12,071 (5,368) 35,183
----------- ---------------- ---------- ------------ ----------
- Operating Profit 10,679 14,680 3,802 (5,249) 23,912
----------- ---------------- ---------- ------------
Finance Income 144
Finance costs (3,134)
----------
Profit before tax 20,922
Taxation (4,596)
----------
Profit for the year 16,326
----------
Balance sheet information
Segment assets - intangible 17,109 11,280 159,367 - 187,756
Segment assets - other 7,935 13,571 68,993 13,961 104,460
----------- ---------------- ---------- ------------ ----------
Total segment assets 25,044 24,851 228,360 13,961 292,216
Total segment liabilities (26,010) (27,398) (63,640) (17,414) (134,462)
----------- ---------------- ---------- ------------ ----------
Net assets / (liabilities) (966) (2,547) 164,720 (3,453) 157,754
----------- ---------------- ---------- ------------ ----------
Group Underlying Operating Profit is as defined in note 6 to
these condensed financial statements
The joint venture interests of the Group are recorded in the
Estate Agency segment, with the associate interest recorded in the
Financial Services.
Unallocated net liabilities comprise plant and equipment
GBP13,000, other assets GBP2,505,000, cash GBP11,443,000, accruals
and other payables GBP(2,592,000), current and deferred tax
liabilities GBP(1,822,000) and revolving credit facility overdraft
GBP(13,000,000). Unallocated result comprises costs relating to the
parent company.
Year ended 31 December 2019
Surveying
Financial and Valuation Estate
Services Services Agency Unallocated Total
Income Statement information GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- ---------------- --------- -------------- ----------
Revenue from external
customers 83,353 86,358 141,362 - 311,073
Introducer's fee (13,552) - 13,552 - -
----------- ---------------- --------- -------------- ----------
Total revenue 69,801 86,358 154,914 - 311,073
----------- ---------------- --------- -------------- ----------
Segmental result:
Group Underlying Operating
Profit 11,642 16,343 14,453 (5,403) 37,035
----------- ---------------- --------- -------------- ----------
Operating profit / (loss) 10,022 17,450 (2,206) (5,518) 19,748
----------- ---------------- --------- --------------
Finance Income 10
Finance costs (3,744)
----------
Profit before tax 16,014
Taxation (3,045)
----------
Profit for the year 12,969
----------
Balance sheet information
Segment assets - intangible 18,088 11,739 160,942 - 190,769
Segment assets - other 9,078 14,822 81,934 1,350 107,184
----------- ---------------- --------- -------------- ----------
Total Segment assets 27,166 26,561 242,876 1,350 297,953
Total Segment liabilities (25,895) (25,020) (58,771) (47,051) (156,737)
----------- ---------------- --------- -------------- ----------
Net assets / (liabilities) 1,271 1,541 184,105 (45,701) 141,216
----------- ---------------- --------- -------------- ----------
Group Underlying Operating Profit is as defined in note 6 to
these condensed financial statements
The joint venture interests of the Group are recorded in the
Estate Agency and Related Services segment, with the associate
interest recorded in the Financial Services.
Unallocated net liabilities comprise plant and equipment
GBP50,000, other assets GBP1,300,000, lease liabilities
GBP(34,000), 12% loan notes GBP(66,000), Bank overdraft
GBP(883,000), accruals GBP(1,916,000), deferred and current tax
liabilities GBP(3,152,000), and revolving credit facility overdraft
GBP(41,000,000).
5. Adjusted performance measures
In addition to the various performance measures defined under
IFRS, the Group reports a number of alternative performance
measures that are designed to assist with the understanding of the
underlying performance of the Group. The Group seeks to present a
measure of underlying performance which is not impacted by the
inconsistency in profile of exceptional gains and exceptional
costs, contingent consideration, amortisation of intangible assets
and share-based payments. Share-based payments are excluded from
the underlying performance due to the fluctuations that can impact
the charge, such as lapses and the level of annual grants.
Costs relating to COVID-19 have been separately identified and
excluded from Group Underlying Operating Profit as the Directors
consider that these adjusted measures shown above give a better and
more consistent indication of the Group's underlying performance.
The most significant areas of these costs are employee related,
which includes a GBP1.3m holiday accrual arising as a result of
furloughed staff and the update to Government regulation on
carrying over annual leave. Redundancy costs of GBP0.8m were
incurred as a result of the enforced Government lockdown. Property
and other asset costs (depreciation) were incurred during the
period of enforced closure of branches following the Government
lockdown, with any property grants received in the same period
reported in this line to sure even-handedness in reporting.
Similarly, establishment costs include rent, rates and other office
costs incurred during the enforced Government lockdown. Other costs
relate primarily to protective equipment to ensure the safety and
welfare of employees and customers and IT set up costs to enable
homeworking. Group Underlying Operating Profit includes GBP15.7m of
amounts receivable relating to the Coronavirus Job Retention
Scheme.
The four adjusted measures reported by the Group are:
-- Group Underlying Operating Profit
-- Adjusted Basic EPS
-- Adjusted diluted EPS
-- Group Adjusted EBITDA
The amortisation of intangible assets is not representative of
the underlying costs of the business and is therefore excluded from
adjusted earnings.
The Directors consider that these adjusted measures shown above
give a better and more consistent indication of the Group's
underlying performance. These measures form part of Management's
internal financial review and are contained within the monthly
management information reports reviewed by the Board.
The calculations of adjusted basic and adjusted diluted EPS are
given in Note 6 to these Condensed Consolidated Group Financial
Statements and a reconciliation of Group Underlying Operating
Profit is shown below:
2020 2019
GBP'000 GBP'000
-------- --------
Group operating profit 23,912 19,748
Share-based payments 18 312
Amortisation of intangible assets 5,395 5,786
Exceptional gains (674) (2,487)
Exceptional costs 7,076 15,730
Contingent consideration credit / (charge) (544) (2,054)
-------- --------
Group Underlying Operating Profit post COVID-19
costs 35,183 37,035
COVID-19 related costs:
COVID-19 related employee costs 2,564 -
COVID-19 related establishment costs 1,417 -
COVID-19 related depreciation costs 1,625 -
COVID-19 related other costs 752 -
-------- --------
Total COVID-19 related costs 6,358 -
-------- --------
Group Underlying Operating Profit pre COVID-19
costs 41,541 37,035
-------- --------
2020 2019
GBP'000 GBP'000
-------- --------
Group Underlying Operating Profit post COVID-19
costs 35,183 37,035
Depreciation on property, plant, and equipment 13,929 14,842
-------- --------
Group Adjusted EBITDA 49,112 51,877
-------- --------
COVID-19 related employee costs 2,564 -
COVID-19 related establishment costs 1,417 -
COVID-19 related other costs 752 -
-------- --------
4,733 -
-------- --------
Group Adjusted EBITDA pre COVID-19 costs 53,845 51,877
-------- --------
6. Earnings per share (EPS)
Basic EPS amounts are calculated by dividing net profit for the
period attributable to ordinary equity holders of the parent by the
weighted average number of Ordinary Shares outstanding during the
period.
Diluted EPS amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the
period plus the weighted average number of ordinary shares that
would be issued on the conversion of all the dilutive potential
ordinary shares into ordinary shares.
Profit 2020 2019
after Weighted Per Share Profit Weighted Per Share
tax average number amount after tax average number amount
GBP'000 of Shares Pence GBP'000 of Shares Pence
Basic EPS 16,326 102,939,680 15.9 12,969 102,669,719 12.6
Effect of dilutive
share options 947,704 425,152
Diluted EPS 16,326 103,887,384 15.7 12,969 103,094,871 12.6
--------- ---------------- ----------- ----------------
Adjusted basic and diluted EPS
The Directors consider that the adjusted earnings shown below
give a better and more consistent indication of the Group's
underlying performance:
2020 2019
GBP'000 GBP'000
Group Underlying Operating Profit pre COVID-19
costs 41,541 37,035
Net finance costs (excluding exceptional and
contingent consideration items and discounting
on lease liabilities) (1,062) (1,600)
Normalised taxation (tax rate 19% 2019:19%) (7,691) (6,733)
-------- --------
Adjusted profit after tax 32,788 28,702
-------- --------
Adjusted basic and diluted EPS
Adjusted Weighted 2020 Adjusted 2019
profit average Per Share profit Weighted Per Share
after tax number of amount after tax average number amount
GBP'000 Shares Pence GBP'000 of Shares Pence
Adjusted basic
EPS 32,788 102,939,680 31.9 28,702 102,669,719 28.0
Effect of dilutive
share options 947,704 425,152
----------- ------------- ----------- ----------------
Adjusted diluted
EPS 32,788 103,887,384 31.6 28,702 103,094,871 27.8
----------- ------------- ----------- ----------------
This represents adjusted profit after tax attributable to equity
holders of the parent. Tax has been adjusted to exclude the prior
year tax adjustments, and the tax impact of exceptional items,
amortisation, share-based payments and costs related to COVID-19.
The effective tax rate used is 19.00% (31 December 2019:
19.00%)
7. Exceptional items
2020 2019
GBP'000 GBP'000
---------- ----------
Exceptional costs:
Aborted merger deal costs 2,350 569
Branch/centre closure and restructuring costs
including redundancy costs 2,312 14,645
Impairment of investment in associate 1,992 -
Other 422 -
Transition costs relating to surveying contracts - 516
---------- ----------
7,076 15,730
---------- ----------
Exceptional gains:
Exceptional gain in relation to historic PI Costs (674) (2,487)
---------- ----------
(674) (2,487)
---------- ----------
Exceptional costs
There were GBP7.08m of exceptional costs in the year (2019:
GBP15.73m), of which GBP2.35m of non-recurring and material costs
(2019: GBP0.57m) relating to aborted merger deal costs in relation
to the discussions for a potential all share combination between
LSL and Countrywide plc, which did not result in an offer by LSL
.
There were GBP2.31m (December 2019: GBP14.65m) of non-recurring
and material exceptional costs relating to the planned Estate
Agency branch/ centre closures and restructuring costs and the
Surveying transformation costs . No further costs are expected in
relation to this.
In February 2021 LSL's associate, Mortgage Gym Limited, entered
administration. The Group has recognised an impairment of GBP1.99m
in the share of associate net assets as a non-recurring exceptional
cost.
In 2020 there were GBP0.42m of non-recurring exceptional costs
in relation to head office restructuring. No further head office
restructuring costs are expected in 2021.
Exceptional Gains
The Group continued to make positive progress in settling
historic PI claims and there has been a release of GBP0.67m (2019:
GBP2.49m) for the provision for professional indemnity (PI)
claims.
8. Dividends paid and proposed
No final dividend in respect of the year ended 31 December 2020
(Year ended December 2019: nil) is declared.
9. Taxation
The major components of income tax charge in the interim Group
income statements are:
2020 2019
GBP'000 GBP'000
------- --------
UK corporation tax:
- current year credit / (charge) 5,111 3,993
- adjustment in respect of prior years (409) (56)
------- --------
4,702 3,937
Deferred tax:
Origination and reversal of temporary differences (597) (657)
Changes in tax rates 243 69
Adjustment in respect of prior year 248 (304)
------- --------
(106) (892)
------- --------
Total tax credit / (charge) in the income
statement 4,596 3,045
------- --------
Corporation tax is recognised at the headline UK corporation tax
rate of 19% (2019: 19%). Accordingly, this rate is applicable in
the measurements of the deferred tax assets and liabilities at 31
December 2020. Deferred tax has been provided at 19% being the rate
at which temporary differences are expected to reverse.
In March 2021, the 2021 Budget included an announcement to
increase the standard rate of corporation tax rate from 19% to 25%
from 1 April 2023. It is expected this will be substantively
enacted during Summer 2021. Since the rate increase was not
substantively enacted at the balance sheet date, deferred tax has
been provided at 19%. The maximum impact on deferred tax balances
of the rate increase is estimated to be GBP575,000.
The effective rate of tax for the year was 22.0% (2019: 19.0%).
The effective tax rate for 2020 is higher than the headline UK tax
rate for a number of reasons including the depreciation of assets
which do not qualify for capital allowances, the impairment of
investments in JVs and associates, and the upward revaluation of
deferred tax liabilities.
Deferred tax credited directly to other comprehensive income is
GBPnil (2019: GBP0.1m). Income tax credited directly to the
share-based payment reserve is GBPnil (2019: GBPnil).
10. Trade and other payables
2020 2019
GBP'000 GBP'000
-------- --------
Current
Trade payables 11,733 11,585
Other taxes and social security payable 24,971 10,896
Other payables 2,291 2,019
Accruals 29,412 30,224
Lapse provision 4,529 5,283
72,936 60,007
-------- --------
Included within other taxes and social security payable is
GBP9.4m of VAT, which has been deferred and will be payable in
instalments between April 2021 and February 2022 as allowed by HMRC
under the VAT deferral new payment scheme in response to the
COVID-19 pandemic. Also included in other taxes and social security
payable is GBP4.3m of PAYE/NIC and Insurance Premium Tax. A Time to
Pay arrangement was reached with HMRC, the full balance was settled
on 1 February 2021.
Lapse Provision
Certain subsidiaries sell life assurance products which are
cancellable without a notice period, and if cancelled within a set
period require that a portion of the commission earned must be
repaid. The lapse provision is recognised as a reduction in revenue
which is based on historic lapses which have occurred. The
provision is the Management team's best estimate of future clawed
back commission on life assurance policies, taking into account
historic lapse rates in each subsidiary.
11. Analysis of Net Bank Debt
2020 2019
GBP'000 GBP'000
-------- ----------
Interest bearing loans and borrowings (including
loan notes, overdraft, IFRS16 lease liabilities,
contingent and deferred consideration
* Current 12,466 11,113
* Non-current 40,060 73,951
-------- ----------
52,526 85,064
Unsecured loan notes - (65)
Less: cash and short-term deposits (11,443) -
IFRS 16 Lessee financial liabilities (33,957) (37,232)
Less: deferred and contingent consideration (5,569) (5,884)
-------- ----------
Net Bank Debt at the end of the period 1,557 41,883
-------- ----------
12. Events after the reporting period
Acquisition of Direct Life & Pensions Services Limited
In January 2021, LSL acquired the 60% of the issued share
capital of Direct Life Quote Holdings Limited, which owns 100% of
the share capital of Direct Life and Pension Services Limited
(DLPS). DLPS is a financial services business specialising in the
provision of outsourced financial services products providing a
range of systems and services to financial intermediaries and
direct to consumer companies. The consideration for the acquisition
is GBP2.4m and is made up of a payment of GBP1.8m which was paid on
completion and GBP0.6m deferred consideration.
The Group are currently in the process of allocating the
purchase price in accordance with IFRS 3 and as a result the
initial accounting for this acquisition is incomplete.
Acquisition of Mortgage Gym
In February 2021, LSL acquired the trade and assets of Mortgage
Gym Limited from administration for a consideration of GBP2.4m. The
events and conditions that led to Mortgage Gym entering
administration existed at 31 December 2020. This is considered an
adjusting event for LSL's investment in associate equity holding,
causing an impairment of GBP2.0m to be recognised through
exceptional costs in 2020 writing the groups carrying value of
Mortgage Gym to GBPnil (see note 7). The fair value of the secured
preference loan notes at 31 December 2020 has been assessed as
GBP2.2m. No fair value adjustment has been required.
New Revolving Credit Facility agreement
In February 2021 LSL announced that it had entered into a new
banking facility which runs to May 2024 with a new limit of GBP90m;
this replaces the existing RCF, with maturity date of May 2022 and
credit limit of GBP100m.
Formation of joint venture with Pollen Street Capital
On 23 April 2021 LSL announced the formation of the Pivotal
Growth joint venture with Pollen Street Capital (PSC), a vehicle
seeking to become a leading national mortgage broker. It is planned
that at least GBP200m will be made available by way of equity and
debt to fund acquisitions. LSL has committed up to GBP33.5m and PSC
up to GBP62.4m to support the acquisitions to be made by Pivotal
Growth. The investment by LSL and PSC will be supplemented with
external debt finance in Pivotal Growth to fund purchases, with a
view to an exit event over a three-to-six year period.
LSL and PSC will each invest up to GBP19.1m for a 47.8% equity
share of Pivotal Growth. In addition, LSL will invest up to
GBP14.4m and PSC up to GBP43.3m by way of loan notes. The
commitments will be drawn down by Pivotal Growth over time
dependent on the timing of acquisitions and the extent of external
debt finance deployed. The LSL investment of up to GBP33.5m will be
funded from LSL's existing cash resource and banking
facilities.
LSL will apply equity accounting for its share of Pivotal Growth
profits after tax and will also recognise loan note interest
receivable, both to be included in the Underlying Operating Profit
of the Financial Services Division. The value of the equity
investment will be recognised in the LSL balance sheet as an
investment in joint venture and the loan notes recognised in
financial assets within non-current assets. In addition, the
acquired companies membership of the PRIMIS network will generate
further profit to the Group. The profile of profit attributable to
LSL from Pivotal Growth will depend on the timing of acquisitions
and before the execution of the first acquisition there will be a
period of modest investment in Pivotal Growth's operating cost
base. Thereafter, the profit contribution to LSL is expected to be
material within 2-3 years, with the opportunity for a meaningful
exit event within a 3-6 year period.
The current structure of the agreement provides that the amount
due to LSL for its share of proceeds at exit is capped. This cap
can be removed unilaterally by LSL with shareholder consent, and
LSL intends in due course to seek shareholder approval to remove
the cap.
As this is a newly established entity, Pivotal Growth has no
gross assets or profits.
Simon Embley, who was LSL's Non-Executive Chair prior to 28
April 2021, has been appointed Chief Executive of Pivotal Growth
and has stepped down from this role of LSL Chair following the
publication of the Group's 2020 results on 28 April 2021. The LSL
Board has agreed to him investing up to GBP4m alongside PSC and LSL
for a 4.4% share in the business. Simon will stay on the LSL Board
as a Non-Executive Director, allowing the Group to continue to
benefit from his knowledge and experience. This position will be
kept under review.
Five-year agreement to provide digital and face-to-face mortgage
and protection advice to The Property Franchise Group
In April 2021, LSL announced that it had reached a long-term
agreement with the UK's largest property franchisor, The Property
Franchise Group plc ("TPFG"), to offer mortgage and protection
advice services to all TPFG's franchisees, including those recently
incorporated as a result of its combination with Hunters Property
Ltd. The Property Franchise Group now has over 430 physical office
locations, conducts the sale of circa 23,000 properties per annum
and manages in excess of 73,000 tenanted properties.
The agreement is for a minimum of a five-year period and means
that LSL will be providing digital and face-to-face mortgage and
protection advice to the customers of TPFG and TPFG's franchisees.
TPFG franchisees will be provided with a range of options via LSL's
award winning PRIMIS Mortgage Network. Franchisees will be offered
the opportunity either to take on their own mortgage adviser and
become an Appointed Representative of PRIMIS, or to refer their
customers to existing PRIMIS Appointed Representatives, including
LSL's in-house mortgage brokers.
This agreement underlines the opportunity for further growth of
its Financial Services businesses, leveraging LSL's existing
leading positions in the mortgage advice market. This contract will
enhance the Financial Services Division profit after an initial
12-18 month investment period requiring one-off transition and
integration costs.
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 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
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 update.
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Policy.
END
FR BCGDSXBDDGBR
(END) Dow Jones Newswires
April 28, 2021 02:00 ET (06:00 GMT)
Grafico Azioni Lsl Property Services (LSE:LSL)
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