BLV.L Regulatory News (BLV)

The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

23 January 2017

BELVOIR LETTINGS PLC

(the "Group" or "Belvoir") 

Pre-Close Trading Update

Belvoir Lettings PLC (AIM: BLV), the UK's largest property franchise, today provides the following update on trading to the close of the financial year ended 31 December 2016, recent developments in the business, and the outlook for 2017.

The Group achieved a solid performance in the final months of the financial year just ended, reflecting the continued underlying organic growth in franchise management service fee income, with further growth arising from the acquired franchised networks at a corporate level and from portfolio acquisitions at a franchisee level. Consequently, the Board expects that the results for the year will be broadly in line with market expectations.

Highlights

· The successful acquisition in June 2016 of Northwood, the largest independent franchised network of 86 offices

· UK coverage expanded substantially by 90 offices to 302 (2015: 212)

· Growth in Group Management Service Fees (MSF) of 61%

· Group revenue up 44% to £10.0m (2015: £6.8m)

· An exceptional charge of £0.3m was incurred on the disposal of certain corporate-owned offices

· The ratio of revenue from lettings to sales now stands at 75%:25% (2015: 77%:23%)

· Recruitment of 7 (2015: 11) new franchise owners into 4 new and 3 existing territories

· Strong year-end bank balance of £1.5m (2015: £2.7m), due to the cash generative nature of the business

· The Board believes that the impact of the proposed ban on tenant letting fees will be substantially mitigated by actions taken during 2017

· Renewed drive to double the level of franchisee portfolio acquisitions in 2017

Autumn Statement

Further to Belvoir's announcement on 24 November in response to the Autumn Statement and the likely impact of the proposed ban on tenant letting fees, it is now clear that there is going to be a period of consultation ahead of the ban being introduced in 2018, which will determine whether there will be a complete ban on tenant fees or whether some recharges of specific costs will be permitted, possibly subject to a cap.

This extended period of consultation will ease the Group and its franchisees into the transition and give us time to focus on ways in which to build on other income streams. Following the ban on tenant fees in Scotland, our franchisees adapted quickly and effectively such that there was no discernible impact on revenue to either the franchisees or the Group. Furthermore, the Group will be extending financial support to franchisees in order to take advantage of the consolidation opportunities expected following the proposed change in legislation, through portfolio acquisitions.

Accordingly, the Board now believes that the potential impact of up to only 8% on Group network revenue as previously announced on 24 November will be substantially mitigated by the actions taken during 2017 in advance of the ban being introduced.

Continued developments to the Franchise Network

The Board also provides an update on recent positive developments to the Group's franchise network including a number of recent franchisee-led acquisitions across the country and the franchising out of four of the Group's corporate-owned offices.

The Belvoir franchisees in Cardiff and Derby West both acquired the portfolio of a local competitor in recent months, adding £220,000 in total to network revenue. These follow on from the acquisitions announced in July for franchisees in Solihull, Rochester, Bournemouth and St Helens. As a result of this activity, the total value of additional revenue to the Belvoir network from franchisee-led acquisitions in 2016 increased to £1,534,000, with additional management service fees to the Group of £243,000 per annum (of which £95,000 accrued in 2016). The Board sees the franchisee portfolio acquisitions as a key part of its growth strategy across all Group networks and has budgeted to double the level of portfolio acquisitions in 2017 backed by a clear programme of direct engagement with its franchisees. In recognition of the more challenging trading conditions for 'cold starts', this strategy is also being extended to include new franchise recruits so that they can build on an existing business.

The acquisition of significant franchise networks over the last two years reflects the focus of the Group on its franchising operations. Accordingly the Board has determined to implement a franchise solution for most of its corporate-owned offices, to enable the Group to further focus its resources on its franchise business, resulting in the sale of four of the Group's ten corporate offices, out of the nationwide office network of 302. Belvoir Lichfield and Belvoir Tadley have been sold to the respective branch managers, while Basingstoke Sales and Belvoir London Central have been sold to its franchisees currently operating in Basingstoke and Chelsea. This has been perceived by the Board as an opportunity to bring fresh impetus to these offices which will now fall within the remit of the Group's franchise support team and systems.

A one off shortfall on the carrying value of goodwill of these four disposals and the anticipated realisation on the remaining corporate offices will result in an exceptional non-cash charge in 2016 of £0.3 million. Based on the net costs incurred in each of the last two years, the annualised savings going forward from discontinuing the corporate operations are estimated at around £300,000 p.a.

Of the remaining six corporate offices, the Group intends to retain the two corporate Belvoir and Newton Fallowell offices in Grantham for system development purposes.

Sector Outlook

According to research by The Royal Institution of Chartered Surveyors (RICS), rising house prices will continue to make home ownership increasingly unaffordable. It is predicted that by 2025, 1.8 million more households will be looking to rent, rather than buy, which bodes well for Belvoir's business.

Additionally, changes to the buy to let sector, such as more stringent mortgage lending criteria and increased taxation, will undoubtedly have an impact on the supply of new buy to let properties in 2017, increasing demand for rental properties and driving rents higher. As such, the rental sector is becoming extremely attractive, with the prospect of fewer void periods and higher yields. Exactly in line with the Board's forecast in February 2016, rental values increased by 2 - 3% across the UK. Outside of London, it is likely that rental values will increase by between 4 - 5% in 2017.

Property values across the UK are expected to rise modestly in 2017 and to address a shortage of homes nationwide, the Government has ambitious plans to achieve a target of one million newly built homes by 2020, which include fourteen new 'garden cities and villages' in sites across the UK.

Mike Goddard, Chairman and CEO of Belvoir commented:

"2016 has been another significant year for the Belvoir Group. Our acquisition of Northwood in June has enabled us to grow our lettings portfolio substantially to some 54,000 managed properties and thus become the largest property franchising group in the UK. This, combined with a full year of trading for our other two recently acquired brands, Newton Fallowell and Goodchilds, and continuing organic and local acquisition growth, has resulted in us growing our underlying Management Service Fee by more than 100% in two years.

We see many more opportunities for consolidation and the Belvoir Group is in prime position at both local and national level to take advantage, despite the challenging times for the industry. In addition, we believe that our clear focus on outstanding customer experiences combined with our exemplary professional service will enable us to adapt to, and succeed in, the changing face of the industry. We look forward to 2017 with confidence and excitement."

For further details:

The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

Note to Editors:

About Belvoir Lettings PLC

Founded in 1995, Belvoir is the UK's largest property franchise group, with 302 outlets nationwide. Since listing on AIM in February 2012 (BLV.L), Belvoir has continued to diversify its core business offer in lettings by broadening into property sales. Operating from its Central Office in Grantham, Lincolnshire, the Group now offers a range of specialist services in property rental, property management, residential lettings, buy to let and property sales.

Belvoir's core revenue is derived from Management Service Fees (MSF); a reliable recurring revenue model which allows the Group to offer franchisees significant support and advice.

In 2015 Belvoir launched its multi-brand franchising strategy; acquiring Newton Fallowell Ltd, an East Midlands-based network of 31 outlets in July 2015 and Goodchilds Estate Agents and Lettings Limited, a West Midlands-based network of 14 outlets in October 2015. In June 2016 Belvoir acquired Northwood, a network of 86 residential lettings and property sales agents operating across the UK, making Belvoir the largest property franchise group in the UK.

Belvoir continues to grow organically by delivering award winning service, prioritising franchisee recruitment and supporting franchisee acquisitions. In recognition, Belvoir was awarded the "Best Lettings Agency Franchise Award" at the 2016 Agency of the Year Awards for the sixth time since the awards started seven years ago.

The Company remains committed to diversifying its brand portfolio, utilising the Group's strong franchising expertise and infrastructure, in order to capitalise on a consolidating market.