Lsl Prop Regulatory News (LSL)

For immediate release  16 March 2022

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

 FULL YEAR RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021

RECORD UNDERLYING OPERATING PROFIT WITH SIGNIFICANT INVESTMENT TO SUPPORT FINANCIAL SERVICES LED GROWTH STRATEGY

KEY HIGHLIGHTS

Record Group financial performance and historically strong balance sheet enabling further investment to deliver the Group's ambitious growth strategy

· Group Underlying Operating Profit1 increased by 40% to £49.3m (2020: £35.2m)

· Record Underlying Operating Profit stated after expensing c.£3m in 2021 to develop Financial Services technology and Direct to Consumer ("D2C") business

· Profit before tax up 234% to £69.9m (2020: £20.9m)

· Net Cash of £48.5m at 31 December 2021 (2020: Net Debt: £1.6m)

Strong profit growth in each of the Group's core businesses

· Financial Services Division: Underlying Operating Profit of the core Financial Services Network business increased by 34% to £14.4m (20202: £10.7m)

· Financial adviser numbers increased by a record 273 year-on-year to total 2,858 at 31 December 2021

· Gross revenue per advisor3 increased by 7%

· LSL's share of the total UK purchase and remortgage market increased to almost 10%

· Surveying & Valuation Division Underlying Operating Profit up 46% to £23.6m (2020: £16.2m), with Operating margin improving significantly to c.25% (20202: 21%), benefiting from operational efficiency and improved income per job

· Estate Agency Division Underlying Operating Profit increased by 53% to £18.4m (2020: £12.1m), reflecting increasing residential market share across its core catchment areas and overall growth in the value of housing transactions

Substantial progress in executing our Financial Services led growth strategy

· Announced five-year agreement to provide mortgage and protection advice services to franchisees of The Property Franchise Group

· Established £200m Pivotal Growth joint venture to "buy and build" a leading national mortgage broker, with two acquisitions made to date

· Completed acquisitions to strengthen digital capabilities in Financial Services

· Restructured D2C Financial Services business, to take advantage of increased opportunities in Estate Agency and New Build sectors

· Sold investments in two non-core businesses for a combined £41.3m, simplifying the Group and providing funds to make further investment to deliver the Group's ambitious Financial Services led growth strategy

We expect 2022 financial performance to benefit from continued growth in Financial Services in a more challenging housing market, demonstrating reduced cyclicality of earnings

· Latest market estimates suggest the mortgage market will be around 11% lower than 2021, and housing transactions in 2022 around 19% lower than 2021

· Mortgage and housing market activity levels are expected to be at similar levels as 2019

· The Group's strategic focus on FS and the significant progress made in Surveying & Valuation, has reduced LSL's exposure to housing market volatility with the result that we expect a more limited impact on the Group's results in 2022 than would historically have been the case

· Overall front-end sales activity across the Group in the year to date is in line with internal expectations

· The financial performance across Financial Services and Surveying & Valuation in the first two months of 2022 is in line with the Board's expectations

· The Board is encouraged by front end sales activity in Estate Agency. However, residential pipeline conversion remains slow, impacted by continuing industry-wide capacity issues in conveyancing and this has delayed Estate Agency profits. The Group retained a strong residential pipeline at 28 February 2022, which had increased by 10% compared to 31 December 2021, with fall-throughs remaining at normal levels

· In 2022 the Board expects mortgage and housing transactions to revert to pre-COVID levels with geopolitical uncertainties adding to existing inflationary cost pressures. The Board has also considered the impact of a market-wide continuation of slower residential pipeline conversion. Nevertheless, at this early stage in the year, the Board's current expectation is that the Group will deliver a full year Underlying Operating Profit in line with its prior expectations, as the business is expected to continue to benefit from the execution of its financial services led growth strategy and strong performance of its Surveying & Valuation business

· The split of H1:H2 profit in 2022 is expected to revert to a more typical profile with a skew to H2, after record housing transactions in H1 2021

· The Financial Services Division remains on track to be the most profitable Division by 2023, with further organic growth in network financial advisers expected, supported by additional advisers from Pivotal Growth firms and to service distribution agreements

Commenting on today's announcement, David Stewart, Group Chief Executive said:

"I am pleased to report that LSL's core businesses are performing well and that our Financial Services led growth strategy has made good progress.

"We expect mortgage and housing transactions to revert to pre-COVID levels with geopolitical uncertainties adding to existing inflationary pressures. These will affect our Estate Division in particular, and as always, we will be agile and respond to market conditions as required.

"However, the benefits of both our growth strategy in Financial Services and the significant progress made in Surveying & Valuation, mean that we expect the housing market cycle to have a more limited impact on the Group's results. We look forward to reporting further growth in Financial Services, alongside continued investment in building our D2C businesses and I remain excited about the Group's longer-term opportunities."

Notes:

1. Group Underlying Operating Profit is before exceptional items, contingent consideration, amortisation of intangible assets and share-based payments (see note 5 of the financial statements). In 2020 COVID-19 costs of £6.4m were recognised in Group Underlying Operating Profit. Stated before COVID-19 costs, Group Underlying Operating Profit in 2020 was £41.5m

2. Divisional Underlying Operating Profit and Divisional Underlying Operating margin comparatives for 2020 are stated on the same basis as Group

3. Gross revenue per adviser is calculated as FS Network gross revenue (excluding the TMA mortgage club) per average adviser

FINANCIAL RESULTS

Notes:

1 Group Underlying Operating Profit is before exceptional items, contingent consideration, amortisation of intangible assets and share-based payments (as set out in note 5 of the Financial Statements).

2 Refer to note 6 of the Financial Statements for the calculation

3 Refer to note 11 to the Financial Statements for the calculation

nm Not meaningful

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GROUP CHIEF EXECUTIVE'S REVIEW

I am pleased to report that we achieved a record year of profits, with strong performances in each of our core businesses - Financial Services Network, Surveying & Valuation, and our owned and franchised estate agencies. We continue to benefit from our Financial Services led growth strategy and we expect the investments we made during 2021 to contribute to our performance in future years.

Record Group results

Group Revenue grew by 23% to £327m, contributing to Group Underlying Operating Profit of £49.3m, an increase of 40%. We ended the year with record Net Cash of £48.5m.

In Financial Services, Underlying Operating Profit of our Network business rose by 34%, supported by further growth in our network of financial advisers, which grew by 11% year-on-year to 2,858 advisers. Underlying Operating Profit for Financial Services as a whole increased by 20%, with further investment being made in technology and our Direct-to-Consumer ('D2C') businesses. Surveying & Valuation improved its operational efficiency and income per job, contributing to a 46% rise in the Division's Underlying Operating Profit.

Estate Agency increased its residential market share across its core catchment areas and its Underlying Operating Profit was 53% higher. Conversion of its pipeline slowed in the second half, following the record market levels experienced in the lead up to the Stamp Duty deadline, as well as industry-wide capacity issues in conveyancing. The Division had a strong pipeline going into 2022.

Strategic and operational developments to support growth

During the year, we invested significantly in growth opportunities in Financial Services, reflecting the substantial long-term potential in this market. This included strengthening our digital capabilities through the acquisitions of Mortgage Gym and Direct Life Quote Holdings Limited and launching our Pivotal Growth joint venture with Pollen Street Capital. Pivotal Growth aims to "buy and build" a leading national mortgage broker and it completed its first acquisition in December 2021, purchasing one of Scotland's largest mortgage brokers. A further acquisition was made in February 2022, purchasing a specialist new build mortgage and insurance brokerage. We are also investing in our D2C financial services model. In addition to capital investment and exceptional costs, we expensed costs of c.£3m in the year as we progressed these initiatives, with further investment planned in 2022. Over the medium-term, we are confident these actions will deliver substantial value for shareholders.

Our focus on our core businesses led us to dispose of two non‐core holdings in 2021. These were LMS, which we sold in May, and TMG, which completed in July. The combined consideration was £41.3m in cash. We estimate that the lost profit contribution from these businesses was approximately £1m in 2021.

We have continued to add strength and depth to the management team, with key hires including a Group Chief Operating Officer, to drive our IT strategy and transformation programme, a highly experienced leader for our Financial Services D2C operation and a new Chief Financial Officer for Financial Services.

Strategic priorities

Our two overarching strategic objectives are to:

1) Put Financial Services at the heart of our strategy, focussing on growth markets

2) Reduce earnings exposure to housing market volatility by generating more resilient and reliable revenues

In Financial Services, we aim to increase our number of financial advisers and increase revenue per adviser.

In Surveying & Valuation, we aim to gain market share in both the B2B and D2C markets, as well as develop new, data-enriched services for lenders.

In Estate Agency, we aim to grow profitable market share, optimise operating efficiency, and develop our franchising proposition.

Our Living Responsibly and ESG programmes will play a central role in the development and execution of our strategy and has been given a high priority by our Board.

Strong balance sheet

The combination of the disposals discussed above and our cash generation in the year resulted in a record Net Cash balance of £48.5m at the year-end. Our balance sheet and strong cash generation enables further investment to deliver the Group's ambitious growth strategy, including continued investment in capability and technology, expected investment in Pivotal Growth D2C brokerage acquisitions, and potential acquisition targets to build our Financial Services Network business. The Board will continue to actively review capital allocation regularly to ensure we maintain an efficient balance sheet.

Dividend

Our policy is to pay out 30% of Group Underlying Operating Profit after finance and normalised tax charges. Having declared an interim dividend of 4.0 pence per share, the Board has recommended a final dividend of 7.4 pence. This, if approved by shareholder, would give a total dividend for the year of 11.4 pence per share, in line with the policy.

The ex‐dividend date is 28 April 2022 with a record date of 29 April 2022 and a payment date of 3 June 2022. Shareholders can elect to reinvest their cash dividend and purchase existing shares in LSL through a dividend reinvestment plan. The election date is 12 May 2022.

A responsible business

We are keenly aware that sustained success is about more than just profits. The Board is committed to ensuring that we are, first and foremost, a responsible business and one that has a positive impact on the communities in which we operate. In our ESG Report and in our Living Responsibly Report, you can read more about our focus on inclusion and diversity, limiting our environmental impact and our work in our communities. It is important that what we do has real substance and is reflected in everything we do, and to help achieve this we have set up independent colleague forums and working groups to drive us forward in each of these areas.

The last couple of years have been hugely challenging and we could not have achieved what we have without the help, hard work and commitment of our staff. I want to thank everyone in the Group on behalf of the Board. I also thank our shareholders for their continued support.

Outlook

Our strategy is on track and our core businesses are performing well. Following the COVID-19 led boom we expect housing and mortgage transactions in 2022 to be more in line with the levels we saw prior to the pandemic, with inflation and the pressure on household finances also having an impact. Geopolitical uncertainty adds further risk. These issues are expected to affect our Estate Agency Division in particular, and as always, we will be agile and respond to market conditions as necessary.

However, the benefits of both our growth strategy in Financial Services and the significant progress made in Surveying & Valuation, mean that we expect the housing market cycle to have a more limited impact on the Group's results. We look forward to reporting further growth in Financial Services, alongside continued investment in building our D2C businesses. We look forward to the future with confidence.

David Stewart

Group Chief Executive Officer

15 March 2022

FINANCIAL REVIEW

Group summary (P&L)

We achieved record Group profit, with growth in the core Financial Services Network business, strong execution in Surveying & Valuation and profitable market share gains in Estate Agency. The Group's financial result was in line with the Board's expectations.

We supported the future growth of our Financial Services businesses and expensed c.£3m in FS technology and D2C. The technology investment is expected to begin to show tangible returns in the second half of 2022 as we roll it out through our Financial Services Network, making our proposition more attractive to potential recruits, increasing our efficiency, and generating additional income from subscription fees. We expect to see the major benefits to start coming through in 2023 and beyond. We also continued to invest in other parts of the Group, notably key Group hires and sustained marketing in Estate Agency to build the sales pipeline for 2022.

Group Revenue increased by 23% to £326.8m (2020: £266.7m), with year-on-year revenue up by 29% in the Financial Services Division, 21% in the Surveying & Valuation Division and 20% in the Estate Agency Division. H1 Group Revenue was up 45%, as we traded well in a favourable housing market, with record transaction levels ahead of the extended Stamp Duty holiday at the end of June 2021. The prior year comparatives for H1 were impacted by COVID-19. H2 Group Revenue was up 6%, reflecting the lower relative level of market activity as well as industry-wide capacity issues in conveyancing impacting pipeline conversion in Estate Agency and slower completion of purchase mortgages in Financial Services.

Group Underlying Operating Profit1 of £49.3m was a record result, 15% more than the previous best in 2015, 40% more than 2020 (2020: £35.2m) and 36% more than 2019 (2019: £37.0m). Group Underlying Operating margin of 15.1% was up year-on-year by 190 bps. On a statutory basis, Group operating profit increased 204% to £72.6m (2020: £23.9m).

The split of H1:H2 profit in 2022 will revert to a more typical profile with a skew to H2, after record housing transactions in H1 2021.

Our profit turns into cash at a high rate, with adjusted cash-flow conversion2 of 106%. The Group finished the year with a very strong balance sheet, reporting Net Cash of £48.5m (2020: Net Bank Debt £1.6m).

Total adjusted operating expenditure

Total adjusted operating expenses increased by 20% to £280.2m (2020: £232.9m). This increase was predominantly in employee costs, with higher commissions linked to the 23% year-on-year increase in revenue, while prior-year employee costs included £15.7m of Government Coronavirus Job Retention Scheme (CJRS) support, reduced payments whilst colleagues were on furlough, the cancellation of all Executive Director bonuses, and other Senior Management Team bonuses which were limited to a maximum of 5%. Other discretionary costs also increased towards normalised levels in 2021 following lower expenditure in 2020 resulting from the impact of COVID-19, which included reduced marketing, office and travel expenditure and other reductions in discretionary costs. 

Group Underlying Operating Profit

Group Underlying Operating Profit of £49.3m was 40% above 2020 (£35.2m). In 2020, COVID-19 costs3 of £6.4m were recognised in Group Underlying Operating Profit. Stated before these COVID-19 costs, Group Underlying Operating Profit in 2020 was £41.5m. The Group has not benefited from any CJRS funds in 2021.

Other operating income, gain on sale of property, plant, and equipment

Other income, relating to rental income, was £0.9m (2020: £0.8m). A gain on sale of £1.1m (2020: £0.02m) was generated from the disposal of seven commercial properties in the Estate Agency Division, for total consideration of £1.7m.

Income from joint ventures and associates

Income from joint ventures and associates of £0.7m (2020: £0.5m) mainly comprised our share of LMS and TM Group profits prior to disposal, and our share of set up costs of Pivotal Growth.

Share-based payments

The share-based payment charge of £1.9m (2020: £0.02m) consists of a charge in the period of £2.6m, offset by lapses and adjustments for leavers and options exercised in the period. The low charge in 2020 was largely as a result of scheme lapses offsetting existing scheme charges.

Amortisation of intangible assets

The amortisation charge for 2021 was £4.5m (2020: £5.4m). The year-on-year decrease was as a result, of some lettings books reaching full amortisation during 2020.

Exceptional items

The exceptional gain of £31.1m (2020: £0.7m) relates to a £29.5m gain on disposal of the Group's joint venture holdings in LMS (£3.2m gain) and TM Group (£26.3m gain) for total proceeds of £41.3m and a release in the PI Costs provision of £1.6m.

The exceptional cost of £2.0m (2020: £7.1m) relates to the formation of the joint venture Pivotal Growth (£1.2m), restructuring costs in Embrace Financial Services (£0.7m) and costs relating to the dissolution of the previously owned associate holding in Mortgage Gym Limited.

Contingent consideration

The credit to the income statement in 2021 of £0.7m (2020: credit £0.5m), relates mainly to the reassessment of the contingent consideration liability for RSC, due to be paid in 2023.

Net financial costs

Net financial costs amounted to £2.7m (2020: £3.0m) and related principally to unwinding of the IFRS 16 lease liability of £1.5m (H1 2020: £1.6m) and interest and fees on the revolving credit facility of £1.0m (2020: £1.2m).

Profit before tax

Profit before tax increased to £69.9m (2020: £20.9m). This increase was largely driven by the improvement in Group Underlying Operating Profit, the exceptional gains on the sale of the investments in the LMS and TM Group joint ventures and the reduction in exceptional costs.

Taxation

The tax charge of £8.0m (2020: £4.6m) represents an effective tax rate of 11.4%, lower than the headline UK tax rate of 19%, mainly due to profits on the sale of joint venture investments not being subject to corporation tax. Adjusting for the profits on the sale of joint venture investments, the effective tax rate was 18.8%. Deferred tax assets and liabilities are revalued to 25% (2020: 19%), the tax rate effective from 1 April 2023.

Basic and Adjusted Basic Earnings Per Share4

The Basic Earnings Per Share was 59.6 pence (2020: 15.9 pence). The Adjusted Basic Earnings Per Share was 37.7 pence (2020: 31.9 pence), an increase of 18%.

1 Group Underlying Operating Profit is before exceptional items, contingent consideration, amortisation of intangible assets and share-based payments (as set out in note 5 of the Financial Statements)

2 Adjusted cash-flow conversion defined as cash generated from operations (pre PI and post lease liabilities) divided by Group Underlying Operating Profit

3 In 2020 costs relating to COVID-19 were separately identified relating to employee costs and property and related costs (as set out in note 5 of the Financial Statements)

4 Refer to note 6 of the Financial Statements for the calculation

DIVISIONAL REVIEW

Financial Services Division

Notes:

1 Underlying Operating Profit is stated on the same basis as Group Underlying Operating profit (as set out in Note 5 of the Financial Statements)

2 LSL mortgage completions lending quoted includes product transfers

3 Gross revenue per adviser is calculated as Financial Services Network gross revenue (excluding the TMA mortgage club) per active adviser

Summary

Financial Services Division Revenue increased by 29%, with profit up by 20%. Profits in the core Financial Services Network business increased by 34%, with operating margins up 400bps to 38% (2020: 34%).

Total financial advisers at 31 December 2021 were up by a record 273 year-on-year to 2,858 and our share of the UK mortgage market grew to around 10%, further consolidating our position as the UK's largest mortgage and insurance network1.

We continued to support the future growth of our Financial Services businesses, with significant investment during the year in technology, development of capability, headcount to support growth, the establishment of the Pivotal Growth joint venture and development of our D2C business. Whilst suppressing profits in the short term, the investment will start to show tangible returns in the second half of 2022, with more material benefits expected in 2023 and beyond.

Financial overview

Net revenue reported for the year was up 29% to £78.5m (2019: £61.0m). H1 revenue increased by 39%, benefiting from a strong purchase mortgage market and COVID-19 impacted comparatives. Revenue was up 20% in H2 reflecting stronger relative comparatives, with higher refinancing volumes and slower completion of purchase mortgages.

Underlying Operating Profit was up 20% to £14.8m (2019: £12.3m). In 2020, COVID-19 costs of £1.2m were recognised in the Financial Services Division. Stated before COVID-19 costs, Underlying Operating Profit in 2020 was £13.5m and Underlying Operating Profit growth in 2021 was 10%.

The Division's revenue mix by product highlights the significance of our insurance business and its success in arranging insurance 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 insurance related revenue. The split of Revenue by product type in 2021 was 43% for mortgage fees (2021: £33.7m), 45% for insurance fees (2021: £35.2m) and 12% in other fees (2021: £9.6m).

For the first time, we are separately disclosing the profit of our core Financial Services Network business, which comprises the PRIMIS Network and the TMA mortgage club. This provides greater transparency and demonstrates the consistent growth and strong margins of this core part of the Financial Services Division. Financial Services Other comprises our New Homes businesses, D2C businesses, technology businesses (Mortgage Gym and Direct Life Quote Holdings Limited) which were both acquired during 2021 and the Pivotal Growth Joint Venture.

Financial Services Network business

Our gross mortgage completion lending increased by 26% to £41.1bn (202: £32.6bn) representing an increased share of the lending market excluding product transfers2 of 9.6% (2020: 9.0%).

Our accounting policy is to recognise Financial Services Network revenue as the net amount of commission retained by the network. To provide additional information, we now also disclose gross revenues. Gross revenues generated by the Financial Services Network (including the TMA mortgage club) increased by 22% to £295.9m (2020: £243.5m). Financial Services Network net revenue increased by 23% to £38.3m (2020: £31.3m).

Gross revenue per average adviser of £93k was a 7% increase (2020: £86k per adviser). In general, advisers joining the Financial Services Network take some time to reach maximum productivity, and as such make a relatively small contribution to turnover in the year of their joining. Revenue in 2022 will therefore benefit from a full year of the advisers who joined in 2021.

Underlying Operating Profit increased by 34% to £14.4m (2020: £10.7m) with the Underlying Operating margin rising to 38% (2020: 34%), notwithstanding significant investment in headcount made to support future growth. Profit was up 87% in H1 and 3% in H2, reflecting the more buoyant market in H1 compared to H2, the weaker COVID-19 impacted comparatives in H1 2020 and the strong bounce-back from lockdown in H2 2020.

Financial Services Other

Financial Services Other revenue increased by 35%, largely reflecting the acquisition of Direct Life Quote Holdings Limited in Q1 2021 and growth in our D2C business, as a result of stronger housing transactions as well as the benefit of the change of commercials between the Financial Services Division and the Estate Agency Division, which was reported in the 2021 Interims. Revenue in New Build was broadly flat. Financial Services Other Underlying Operating Profit reduced to £0.4m (2020: £1.6m), reflecting the investment for future growth, weaker execution in New Build, and D2C profit increasing in the more buoyant market, albeit with weaker conversion rates from our owned and franchised Estate Agency leads as we switched resources to focus on launching the TPFG deal.

Financial Services Other profit is stated after expensing c.£3m in FS technology and D2C, including costs of the TPFG contract and the Pivotal Growth joint venture set up costs. As anticipated, the TPFG contract will continue to act as a drag on profitability in 2022 and is expected to generate a positive contribution by 2023. The Pivotal Growth joint venture was established in April 2021, with a net loss in 2021 of £0.9m representing set-up costs and overheads. A positive contribution is expected in 2022, dependant on the profile of acquisition undertaken and the financing means used.

As well as significant investment in Mortgage Gym, we continued to invest in the Financial Services Network technology platform (Toolbox), to deliver benefits to firms and their advisers and create further efficiencies and improved functionality. Capital investment in the platform amounted to £0.5m in 2021 (2020: £0.5m).

1 UK's largest mortgage and insurance network based on LSL estimates

2 New mortgage lending by purpose of loan, UK (BOE) - Table MM23

Surveying & Valuation Division

Notes:

1 Underlying Operating Profit is stated on the same basis as Group Underlying Operating profit (as set out in note 5 of the Financial Statements)

2 Full Time Equivalent (FTE)

Summary

The Surveying & Valuation Division's Underlying Operating Profit increased by 46%, as we traded very well in favourable markets during H1 and benefited in H2 from increased key lender allocations. Surveyor capacity utilisation also improved in 2021, with 11% more jobs performed whilst employing fewer operational surveyors. Underlying Operating margin increased to 25% (2020: 21%), due to improved utilisation and higher income per job.

We estimate that we increased market share in 2021, while maintaining operational resilience and providing high-quality service in a very busy market. We were named Mortgage Surveyor of the Year at the 2021 Mortgage Awards organised by Money Age. During 2021, two key supplier contracts were renewed, increasing allocations, and we also achieved increases in allocations from some existing lender clients. Around three quarters of our total annual volume is currently secured for two or more years.

Financial overview

Revenue increased by 21% to a record £93.7m (2020: £77.1m). H1 revenue was up 48% compared to COVID-19 impacted H1 2020. H2 revenue was up 3%, which was a very strong performance given H2 total mortgage approvals for house purchases were down 22% compared to the same period in the prior year. At the 2021 Interims, we identified the opportunity to commercialise valuable data gathered as part of the valuation process. Revenue for data services of £0.1m was generated for the first time during H2.

Underlying Operating Profit increased by 46% to £23.6m (2020: £16.2m), up 179% in H1 and up 1% in H2. In 2020, COVID-19 costs of £1.7m were recognised in the Surveying & Valuation Division. Stated before COVID-19 costs, Underlying Operating Profit in 2020 was £17.9m.

Income per job increased by 9% to £173 (2020: £159), reflecting an improved lender mix, house price inflation and a slightly lower proportion of remote valuations in 2021 of 18%, compared to the COVID-19 impacted period in 2020, during which remote valuations made up 24% of the total.

During 2021, 71% of the Division's revenues 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 period was 541,000, which was 11% greater than 2020.

At 31 December 2021, the total provision for professional indemnity (PI) costs was £3.9m (31 December 2020: £7.0m). The Group continued to make positive progress in addressing historic PI claims and there was a net £1.6m exceptional gain in the year. The number of new valuation claims provided for in the period remained very low.

The number of operational surveyors employed (FTE) at 31 December 2021 slightly reduced to 489 (31 December 2020: 513). Our graduate and trainee mentoring programmes continue to provide new productive surveyors, to alleviate any capacity constraints in the market.

Estate Agency Division

Notes:

1 'Other income' includes franchise, conveyancing services, Asset Management, EPCs, Home Reports, utilities and other products and services to clients of the branch network

2 Underlying Operating Profit is stated on the same basis as Group Underlying Operating profit (as set out in note 5 of the Financial Statements)

Summary

Estate Agency Division Underlying Operating Profit increased by 53%, with Underlying Operating margin up to 12% (2020: 9%), benefiting from good trading in favourable residential markets in H1 and an increase during the year in our residential market share across the core catchment areas in which we compete.

The strong sales pipelines coming into 2021, favourable market conditions and very high exchange volumes in the lead up to the extended Stamp Duty holiday that ended in June, contributed to very strong residential sales exchange income in H1. Estate Agency residential pipeline conversion slowed in H2 2021, following the record market levels experienced in the lead up to the 30 June 2021 Stamp Duty deadline and capacity issues in the conveyancing market.

Financial overview

Total Estate Agency Division revenue increased by 20% to £154.6m (2020: £128.7m), increasing by 46% in H1 and 1% in H2, reflecting the residential market dynamics described above.

Estate Agency Underlying Operating Profit increased by 53% to £18.4m (2020: £12.1m). H1 2021 Underlying Operating Profit of £12.5m was very significantly higher than H1 2020 (H1 2020: £2.4m), benefiting from the strong opening pipelines and very strong Residential Sales performance. Profits in H2 were £5.9m (2020: £9.7m) largely reflecting reduced pipelines following the record June 2021 exchanges, a flat housing market in H2 compared to the prior year and the slowdown in exchanges in Q4 2021. In addition, lost profit contribution following the disposal of the non-core holdings in LMS and TM Group, reduced comparative profit further in H2 by a total of c.£1m. Underlying Operating Profit also benefited from the improved franchise revenues of £2.7m in 2021 (2020: £1.7m).

In 2020, COVID-19 costs of £3.4m were recognised in the Estate Agency Division. Stated before COVID-19 costs, Underlying Operating Profit in 2020 was £15.5m.

Residential Sales

Residential Sales exchange income increased by 47% to £71.7m (2020: £48.8m). The number of exchange units increased by 46% on the prior year. This is ahead of the overall market trend on a national level, reflecting the increase in market share in the locations we trade in. Residential Sales exchange income was up by 117% in H1 and 4% in H2. The Residential Sales exchange pipeline at 31 December 2021 was 7% lower than the record pipeline reported at the same date in 2020.

Lettings

In the lettings market there was a very limited supply of new instructions and we therefore focused on reletting and retaining our managed property portfolio. The total number of managed properties at 31 December 2021 was 24,372, broadly in line with the same date in 2020. Total Lettings income increased by 6% to £62.0m (2020: £58.6m) largely reflecting an increase in Q2 2021 compared to the COVID-19 impacted prior year in the same period.

Other income

Other income was down 2% to £20.8m (2020: £21.2m) with strong residential markets benefiting conveyancing and other income (up 43%) and franchise income (up 64%). These increases were more than offset by falls in Estate Agency share of Financial Services income, which was down 36% primarily reflecting the changed commercial arrangement with the Financial Services Division, as reported at the 2021 Interim Results Statement, and Asset Management (down 10%) due to lower market repossession volumes.

BALANCE SHEET REVIEW

Goodwill

The carrying value of goodwill is £160.9m (31 December 2020: £159.9m), with £1.0m added due to the acquisition of Direct Life Quote Holdings Limited. No impairment is required from the Group's annual impairment testing.

Other intangible assets and property, plant and equipment

Total capital expenditure in the year amounted to £6.9m (2020: £4.1m). We continued to invest in technology and the capital expenditure in the year, including £2.2m (2020: £1.8m) for further development of the Toolbox platform in the Financial Services Division and investment by the Estate Agency Division in third-party property software. The prior year also reflected cash conservation measures taken during the lockdown, which focused capital spend on essential projects.

Financial assets and investments in joint ventures and associates

Financial assets

Financial assets of £5.7m at 31 December 2021 (2020: £9.6m) comprise investments in equity instruments 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 this investment has been assessed and a fair value impairment of £2.0m has been made through the Statement of Other Comprehensive Income. The carrying value of the Group's investment at 31 December 2021 is £4.5m (2020: £6.5m).

The decrease in the year also included settlement of secured loan notes, as consideration for the purchase of the trade and assets of Mortgage Gym Limited.

Joint ventures

The Group established the Pivotal Growth joint venture during the year and held a 47.8% interest at 31 December 2021. The joint venture is equity accounted and is held on the balance sheet at £1.6m at 31 December 2021, representing equity investment during the period less our share of costs for the period.

During 2021, we disposed of our entire holding in both non-core businesses LMS (May 2021) and TM Group (July 2021) for total proceeds of £41.3m. At 31 December 2020, these businesses had been held on the balance sheet at £11.4m.

As reported at the 2021 Interims, as part of the LMS sale we agreed to provide an indemnity to a maximum of £2m in relation to claims of fraud by an LMS panel law firm. We are required to assess the fair value of the most probable outcome on this indemnity. There is uncertainty around how likely a claim can be made by the four banks with identified losses. We have assessed the available information on the claims and in line with the accounting standards, a provision for our share of these claims has been included of £0.6m, offsetting the gain on disposal of LMS.

Mortgage Gym

In February 2021, the Group acquired the trade and assets of Mortgage Gym Limited, a former associate of the Group, for £2.4m. The loan notes valued at £2.24m at 31 December 2020 were offset against the consideration for the purchase from the administrators, reducing the balance of these loan notes to nil. The exceptional write down of the £2.0m carrying value of the investment in Mortgage Gym Limited was recognised in the Financial Statements in the Annual Report and Accounts 2020.

Bank facilities / Net Bank Debt / Liquidity

On 24 February 2021, we announced a new banking facility, providing the Group with balance sheet flexibility to take advantage of growth opportunities, particularly in Financial Services. A £90 million committed revolving credit facility, with a maturity date of May 2024, arranged on competitive terms, replaced the previous £100m facility that was due to mature in May 2022.

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

The facility is provided by Barclays Bank PLC and Santander UK plc, two long-standing banking partners, alongside NatWest Bank plc, a new member of the banking syndicate. We have a strong and long-standing relationship with NatWest Bank plc, through our Financial Services and Surveying & Valuation Divisions.

At 31 December 2021, Net Cash was at a historic high of £48.5m (2020: Net Bank Debt: £1.6m).

The Group generated adjusted cash from operations of £37.7m (2020: £66.3m). After adjusting for payments made during 2021 for tax payment deferrals agreed with HMRC relating to 2020, the cash-flow conversion1 rate in 2021 was 106% (2020: 122%). The reported cash-flow conversion rate before adjusting for tax deferral payments, was 76% (2020: 159%).

The net increase in cash and cash equivalents of £37.0m during 2021 (2020: £11.4m increase) included £41.3m proceeds from the sale of investments in LMS and TM Group, investments in Pivotal Growth (£2.5m) and Direct Life Quote Holdings Limited (£1.8m), capital expenditure of £6.9m (2020: £4.1m) and payment of the reinstated 2021 Interim dividend of £4.2m (2020: £nil dividends paid). Working capital out-flows included payments for tax deferrals from 2020, with provisions also decreasing by £3.2m (2019: decrease of £1.5m), due to the positive progress in addressing historic PI claims.

Contingent consideration

Contingent consideration at 31 December 2021 was £3.0m (31 December 2020: £5.4m). Contingent consideration relates primarily to the cost of acquiring the remaining shares in RSC. The year-on-year reduction reflects part settlement and an update to forecasts, both relating to RSC, with additions in the period due to the acquisition of Direct Life and Quote Holdings Limited.

Treasury and Risk Management

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

International Financial Reporting Standards (IFRS)

The Financial Statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and UK adopted International Accounting Standards.

1 Adjusted cash-flow conversion defined as cash generated from operations (pre PI and post lease liabilities) divided by Group Underlying Operating Profit

Group Income Statement

for the year ended 31 December 2021

Group Statement of Comprehensive Income

for the year ended 31 December 2021

Group Balance Sheet

as at 31 December 2021

Group Statement of Cash-Flows

for the year ended 31 December 2021

Group Statement of Changes in Equity

for the year ended 31 December 2021

During the year ended 31 December 2021, the Trust acquired nil LSL shares. During the period, 555,824 share options were exercised relating to LSL's various share option schemes resulting in the Shares being sold by the Trust. LSL received £1.4m on exercise of these options.

The notes on pages [page] to [page] form part of these Financial Statements. 

Group Statement of changes in equity

for the year ended 31 December 2020

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 £176,000 on exercise of these options.

Notes to the Preliminary Results Announcement

The above results and the accompanying notes do not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006.

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 who were members of the Board in 2021 confirm 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 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 December 2020. The Group's Financial Statements are presented in pound sterling and all values are rounded to the nearest thousand pounds (£'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 March 2023. 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 2021.

In preparing the Group Financial Statements Management has considered the impact of climate change, taking into account the relevant disclosures in the Strategic Report, including those made in accordance with the recommendations of the Taskforce on Climate‐related Financial Disclosures. Recognising that the environmental impact of the Group's operations is relatively low, no issues were identified that would impact the carrying values of the Group's assets or have any other impact on the Financial Statements.

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:

4. Segment analysis of revenue and operating profit

LSL reports three segments: Financial Services; Surveying & Valuation; and Estate Agency:

· The Financial Services Division is a provider of services to mortgage intermediaries and specialist mortgage and insurance advice to estate agency and new build customers

· The Surveying & Valuation Division provides a valuations and professional surveying service of residential properties to various lenders and individual customers

· The Estate Agency Division provides services related to the sale and letting of residential properties. It operates a network of high street branches, arranges conveyancing services and for a range of lenders provides repossession and asset management services.

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 2021 and the financial year ended 31 December 2020.

Year ended 31 December 2021

Group Underlying Operating Profit is as defined in note 6 to these condensed Financial Statements.

In the year the Group sold its interests in the two joint ventures recorded in the Estate Agency Division, results for these joint ventures are recorded to their disposal dates. The Group acquired an interest in a joint venture in the Financial Services Division during April 2021.

Unallocated net assets comprise Intangible assets and plant and equipment £0.1m, other assets £3.0m, cash £48.5m, accruals and other payables £3.4m current and deferred tax liabilities £2.1m. Unallocated result comprises costs relating to the parent company.

Year ended 31 December 2020

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 other assets £2.5m, cash £11.4m, accruals and other payables £2.6m, current and deferred tax liabilities £1.8m and revolving credit facility overdraft £13m. Unallocated result comprises costs relating to the parent company.

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. 

In the prior year, costs relating to COVID-19 were separately identified and excluded from Group Underlying Operating Profit as the Directors considered that these adjusted measures shown give a better and more consistent indication of the Group's underlying performance. The most significant areas of costs relating to COVID-19 were employee costs and property and related asset costs. In 2021, the group has not incurred separately identifiable costs related to COVID-19 and has not excluded any from Group underlying operating profit.

The three adjusted measures reported by the Group are:

· Group Underlying Operating Profit

· Adjusted Basic EPS

· Adjusted diluted EPS

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:

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.

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:

Adjusted basic and diluted EPS

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 and share-based payments. The effective tax rate used is 19.0% (31 December 2020: 19.0%)

7. Exceptional items

Exceptional costs

Exceptional costs in relation to investment in joint venture

Costs relating to class 1 circular, shareholder meeting and the set-up of Pivotal Growth

There were £1.2 m (2020: nil) of non-recurring and material exceptional costs relating to the formation of Pivotal Group, a new joint venture. No further costs are expected in relation to this.

Embrace Financial Services restructuring project

There were £0.7m (2020: nil) of non-recurring and material exceptional costs relating to the restructure of Embrace Financial Services. No further costs are expected in relation to this.

Dissolution of associate Mortgage Gym

Mortgage Gym associate went into administration in February 2021. At the time the Group held £2.0m on its Balance Sheet as an investment in associate. The Group recognised an impairment for the full value of it's holding in Mortgage Gym, and the administrator fees of £0.2m. The £2.0m impairment was recognised in the 2020 Group Financial Statements as an event after the reporting period, with the Administrator fees being recognised in 2021. No further costs are expected in relation to this.

Exceptional Gains

Provision for professional indemnity (PI) claims and insurance claim notification

The Group continued to make positive progress in settling historic PI claims, in which actual settlement costs have been lower than expected, and therefore there has been a release of £1.6m in 2021 (December 2020: £0.7m) in relation to exceptional PI claims.

Disposal of interest in joint ventures

In May 2021, the Group disposed of its 49.6% interest in Cybele Solutions Holdings Limited ("LMS") for consideration of £12m. The net gain recognised on sale of LMS was £3.2m.

In August 2021, the Group disposed of its 32.34% interest in TM Group Limited ("TMG") for consideration of £29.3m. The net gain recognised on sale of LMS was £26.2m.

8. Dividends paid and proposed

9. Taxation

The major components of income tax charge in the interim Group income statements are:

Corporation tax is recognised at the headline UK corporation tax rate of 19% (2020: 19%).

The opening deferred tax balances in the financial statements were measured at 19%. For the year ended 31 December 2021, a tax rate of 25% has been applied in line with rates enacted by the Finance Act 2021 which was enacted on 10 June 2021. This gives rise to a debit to the profit and loss account of £0.6m.

The effective rate of tax for the year was 11.4% (2020: 22.0%). The effective tax rate for 2021 is lower than the headline UK tax rate for several reasons, the most significant being the profit on disposal of investments which are not taxable as they qualify for Substantial Shareholders Exemption.

Deferred tax debited directly to other comprehensive income is £0.1m (2020: £nil). Income tax credited directly to the share-based payment reserve is £0.4m (2020: £nil).

10.  Trade and other payables

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 lapse experience. 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 Cash/ Bank Debt

12.  Events after the reporting period

In February 2022, LSL invested an additional £0.9m in its Pivotal Growth joint venture to fund its buy and build growth strategy.

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.