Lsl Prop Regulatory News (LSL)

13 April 2023

LSL Property Services plc (LSL or Group)

FULL YEAR RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022

RESILIENT TRADING AND STRONG BALANCE SHEET TO SUPPORT FUTURE GROWTH

LSL has today released its Preliminary Results for the year ended 31 December 2022.

David Stewart, Group CEO, commented:

"I am pleased to report that LSL is in good shape. In 2022, the Group traded well in challenging market conditions, whilst making substantial progress in the execution of our strategy to grow and to become a B2B financial services provider. As a result, we remain well-placed to deliver on our strategy and capitalise on the significant opportunities we see available."

Highlights

· All Divisions traded well and gained market share

· FY22 performance in line with the Board's November guidance

· Group Revenue resilient at £321.7m (2021: £326.8m)

· Group Underlying Operating Profit1 of £36.9m (2021: £49.3m), impacted by smaller purchase market and adverse effect of mini-budget on our Surveying & Valuation business in Q4 2022

· Group operating loss of £56.7m (2021: £72.6m profit) after the Board reduced the carrying value of goodwill by £87.2m. This is a non-cash item reflecting the impact of more conservative mid-term housing market assumptions, higher discount rates and the disposal of non-core businesses. In 2021, the statutory operating profit was boosted by a £29.4m gain on the disposal of interests in joint ventures, which was also part of our strategy to exit from non-core businesses

· The Group is highly cash-generative with £35.2m generated from operations in FY22

· Share of UK purchase and re-mortgage market increased to a record 10.4%2 (2021: 9.6%)

· Surveying & Valuation performed strongly, delivering resilient margins and profits

· Estate Agency retained local market share gains made in 2021, and slightly increased national market share3

· Significant strategic progress to simplify the Group and focus on business-to-business services (B2B), with the disposal of direct-to-consumer (D2C) financial services businesses to our Pivotal Growth joint venture and the Marsh & Parsons disposal

· Very strong balance sheet with Net Cash4 of £40.1m at 31 December 2022 (2021: £48.5m)

· Full year dividend maintained at 11.4p

· Improved trading momentum in challenging markets, with higher levels of activity in all divisions, will support stronger performance expected in the second half of 2023

Outlook 

· We expect market conditions to remain challenging during H1 but to improve in H2 and thereafter, supported by a strong re-mortgage market, and further improvements in consumer confidence and transaction levels assisted by recent reductions in mortgage rates

· Trading in our Financial Services Network and Estate Agency businesses is in line with expectations, with signs of increasing momentum

· In Surveying & Valuation, valuations in more specialist areas such as equity release and buy-to-let have recovered less quickly after the rise in interest rates and market disruption which followed the 2022 mini-budget, with these segments still trending significantly below 2022

· We will manage costs pro-actively as market conditions evolve

· Planned investment for the longer term will continue, underpinning confidence for the future

· LSL remains very well-placed to benefit as market conditions improve

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)

2 Mortgage lending excluding product transfers - New mortgage lending by purpose of loan, UK (BOE) - Table MM23 (published 31 January 2023)

3 Number of residential property transaction completions with value £40,000 or above, HMRC (published 24 January 2023)

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

FINANCIAL RESULTS

Notes:

1 Group Underlying Operating Profit is before exceptional costs, 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 of the Financial Statements for the calculation 

nm not meaningful

GROUP CHIEF EXECUTIVE'S REVIEW

Review of 2022 Performance

I am pleased to confirm that LSL remains in good shape and is well-positioned to grow once market conditions improve.

Although the mortgage and housing markets have been adversely impacted by economic and political uncertainty, the Group has continued to trade well and backed by a strong balance sheet, we expect to remain resilient throughout 2023 in what are anticipated to be difficult, but steadily improving, market conditions.

Furthermore, we have made very substantial progress in executing our Financial Services-led growth strategy, significantly reducing our exposure to housing market cycles. With a strong balance sheet, including Net Cash1 balances of £40.1m at the year end, and a business model that remains highly cash-generative, LSL is well placed to benefit as soon as market conditions normalise.

Group Revenue was broadly in line with 2021 at £321.7m. This included record revenue of £81.7m in Financial Services, and a very strong H1 2022 performance in Surveying & Valuation, which was subsequently impacted by the significant and unexpected market disruption resulting from economic and political uncertainty in Q4 2022.

Group Underlying Operating Profit2 was down 25% compared to 2021 at £36.9m, which is mostly attributable to reduced volumes in Surveying & Valuation during Q4 2022 and the impact of a slowdown in the residential sales market in Estate Agency. On a statutory basis, the Group operating loss was £(56.7)m, after the Board reduced the carrying value of goodwill by £87.2m. This is a non-cash item reflecting the impact of more conservative mid-term housing assumptions, higher discount rates and the disposal of non-core businesses, including Marsh & Parsons. In 2021, the Group reported a statutory operating profit of £72.6m, which was boosted by a £29.4m gain on the disposal of interests in joint ventures, which was also part of our strategy to exit from non-core businesses.

In Financial Services, the Underlying Operating Profit2 of our Network business was £15.5m, ahead of the record result in 2021 (£14.4m). Although member firms were naturally cautious about adviser numbers in H2, there was also modest further year-on-year growth in the number of advisers, bringing the year-end total to 2,867. In addition, more than 700 other firms submitted business through LSL's mortgage club, further boosting our market share.

The Financial Services Division as a whole secured an 11% increase in overall lending, well ahead of the whole market which had only modest growth of 1.9%. This resulted in a substantial market share improvement to 10.4%3 from 9.6% in 2021.

Underlying Operating Profit2 for the Financial Services Division as a whole reduced by £1.5m, as the Group's D2C advice businesses were impacted by lower levels of activity in the new build market in particular, and the house purchase market in general. Our direct-to-consumer financial services businesses were transferred during the early part of 2023 to our joint venture with Pollen Street Capital, Pivotal Growth, in line with LSL's strategy to focus its activities on B2B services. We believe Pivotal Growth, in which the Group has a 48% equity share, is better placed to take these businesses forward for the benefit of our shareholders.

Surveying & Valuation traded very strongly through to the end of Q3 2022, capitalising on recent contract wins and increased allocations as well as further growth of 73% in D2C and data revenues. Its excellent performance was interrupted by the market-wide hiatus in mortgage activity in October and November, as lenders remained cautious whilst the political and economic impact of the events that followed September's mini-budget became clearer. This is estimated to have directly reduced H2 Underlying Operating Profit in the Surveying & Valuation Division by at least £5m.

Nevertheless, the Surveying & Valuation Division still reported Underlying Operating Profit2 of £20.4m, down £3.2m on 2021, but still £4.1m or 25% higher than the pre-COVID-19 performance of £16.3m reported in 2019. Despite the market pressure, the Underlying Operating Profit margin2 remained resilient at 22%. Income-per-job increased slightly to £175, £2 up on 2021.

Estate Agency revenues were down 5% on 2021, when performance was boosted substantially by the extension of the stamp duty holiday. H2 2022 improved materially year-on-year on the back of the pipeline built up in H1. Lettings revenue was resilient and increased by 4%, on a like for like basis, over the prior year.

Estate Agency retained the residential sales market share gains made in its core catchment areas in 2021, and as a result slightly increased its national market share4 to 1.30% (2021: 1.28%). Conversion of its exchange pipeline remained slow throughout the year, impacting H1 performance in particular. H2 2022 saw fewer new properties coming to market and fewer sales agreed but the strong pipeline built in H1 secured an operating profit double the size of H2 2021. Unsurprisingly, given increased economic and housing market uncertainty, there was a trend towards more fall-throughs, largely affecting more recently agreed sales, both of which will impact performance in Q1 2023.

Lettings revenue was resilient, increasing by 4%, on a like for like basis, over 2021. The impact of slow exchange speeds, reduced house purchase activity and a solid lettings performance combined to produce Underlying Operating Profit2 for the Estate Agency Division of £10.5m, £7.9m below the performance in 2021 which had benefited significantly from the extension of the stamp duty holiday to 30 June 2021. The performance during H2 was 4% ahead of H2 2021.

Strategic priorities and developments

The Group has made substantial progress with the strategy we set out in 2020 to reduce our exposure to housing market cycles, simplify the business and focus investment on high-growth areas, notably our Financial Services Network business.

In January 2023, we announced the disposal of our London estate agency business, Marsh & Parsons, to Dexters for a consideration of £29m. Marsh & Parsons, which contributed £1.5m to 2022 Underlying Operating Profit, has a relatively low volume, high fee business model when compared to the rest of the Estate Agency Division, and was particularly exposed to London housing market cycles giving rise to a relatively volatile earnings profile. Other steps to simplify the Group include the disposal of our small property management business PRSim and the consolidation of our asset management operations within our Surveying & Valuation Division.

Throughout 2022 we maintained our level of investment in Mortgage Gym and DLPS, the technology businesses acquired in April 2021 to support our Financial Services growth plans. Work continued to adapt and develop the technology with a view to deployment across our Financial Services Network, with the first stage of this work to be completed during 2023. This technology investment helps our Network members become more efficient as well as generating additional income for them and the Group.

In 2023, we will complete our work to re-focus these businesses, which will be absorbed into the Financial Services Network reflecting what is now their predominant business focus.

Our Financial Services led growth plans are centred on the B2B service offered to our Network members where we believe there are significant opportunities to grow further by expanding the number of advisers and the product range they distribute. The Network business offers a highly scalable, low-cost platform through which strong margins can be sustained in different market conditions and is consistent with our vision of LSL as a B2B service provider.

We previously concluded that it would be better to pursue the considerable opportunities in the D2C mortgage broking market under a different ownership structure to that of the Group, so that significant capital could be deployed and entrepreneurs incentivised appropriately through different economic cycles. This led to the announcement in 2021 of our Pivotal Growth "buy-and-build" joint venture with Pollen Street Capital.

Pivotal Growth has now acquired eight businesses, comprising around 330 advisers, including the Group First and RSC, Embrace Financial Services and First2Protect direct-to-consumer businesses transferred from LSL. The consideration for RSC, Group First and Embrace Financial Services will be based on their financial performance in 2024. The consideration for F2P is payable at completion.

I believe this is an exciting move for both Pivotal Growth and LSL, providing increased scale for Pivotal Growth and the right environment for these businesses to grow further. It has also helped simplify the LSL Group considerably, substantially reducing our cost base and exposure to housing market cycles whilst also reducing management stretch to enable us to focus on the substantial opportunity to grow the remaining Financial Services Network, Surveying & Valuation and Estate Agency businesses.

In Surveying & Valuation we have continued to diversify our revenue streams. In May 2022, we launched a consumer-facing website to support the growth of our enhanced direct-to-consumer proposition, where we achieved a 60% increase in revenue year-on-year. Providing data services to lenders has strengthened our relationships and helped secure contract wins and increased allocations of valuation instructions, whilst we have established a strong position in the equity release valuation segment, a sector we expect to grow significantly over the medium term. Equity release instructions accounted for approximately 16% of revenue in 2022 (2021: 12%).

Strong balance sheet

Our cash generation in the year resulted in a Net Cash balance of £40.1m. This was boosted further in January 2023 following the disposal of Marsh & Parsons for a consideration of £29m. Our strong balance sheet and continuing strong cash generation enables us to invest with confidence throughout the economic cycle, including restructuring the Group to deliver our ambitious growth strategy. In 2023, we will continue to invest in capability and technology, support Pivotal Growth in its acquisition of D2C brokerages, and consider potential acquisition targets to build our Financial Services Network business. The Board will continue to actively review its capital allocation policy to ensure we maintain an efficient balance sheet.

To provide further flexibility to our balance sheet, during February 2023 we agreed an amended and restated banking facility with a maturity date of May 2026, arranged on materially the same terms, replacing the previous £90m with a £60m revolving credit facility with major mainstream UK lenders, available on request at any time. 

Dividend

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

Although economic conditions have affected current earnings, we have made significant progress in executing our strategic shift to develop a business that is less exposed to the housing market cycle.

As part of that shift and the associated rationalisation of certain businesses such as the recent sale of Marsh & Parsons, we have built significant Net Cash balances, which at 31 December 2022 and prior to the disposal of Marsh & Parsons, stood at £40.1m. In light of this exceptionally strong cash position and the Board's confidence in the future prospects of the Group, the Board recommends a final dividend of 7.4 pence. If approved, this would give a total dividend of 11.4 pence per share, unchanged from last year.

The ex-dividend date is 27 April 2023 with a record date of 28 April 2023 and a payment date of 2 June 2023. Shareholders can elect to reinvest their cash dividend and purchase additional shares in LSL through a dividend reinvestment plan. The election date is 11 May 2023.

The Board continues to keep its capital allocation policy and balance sheet structure under close review to ensure it is fit for purpose for our evolving business model and will seek to update shareholders on this as appropriate.

Living Responsibly

The Board believes that success is measured by more than just profits and our Living Responsibly programme is at the centre of our sustainability strategy. Put simply, our objective is to have a positive effect on the communities in which we operate, whether that is measured by the impact we have on the environment, the opportunities we provide to colleagues, the way we serve our customers or the work we undertake in our communities. 

In our ESG and our Living Responsibly reports, we set out some of the steps we have taken to limit our environmental impact, help ensure LSL is a supportive and inclusive workplace and provide support to good causes.

It is vital that our Living Responsibly programme has real substance and is reflected in everything we do. We are helped to achieve this by a number of independent colleague forums and working groups which provide additional insight in key areas. Further information on these, including the establishment in 2023 of LSL Voices is also set out in our Living Responsibly Report. I am grateful to the very many colleagues who have willingly given their time and energy to support this work.

I am equally grateful for the hard work and commitment of all our staff during what has been a hugely challenging period and which has helped ensure LSL is well-positioned to thrive in all market conditions, and would like to take this opportunity to thank them for their effort and support.

Looking Ahead

We have made significant progress in re-shaping the Group in line with our strategy and each of our core businesses are performing well. After a strong start to 2022 which saw us build substantial pipelines in Estate Agency and Financial Services, market conditions deteriorated as a result of political instability and sharply rising interest rates and although we expect to see a steady improvement in activity over the course of the year, it is clear that conditions will remain challenging throughout 2023.

However, LSL remains well-positioned for future growth. Independent mortgage brokers typically perform well in challenging markets, being agile and close to their client's needs, and this will help ensure our Financial Services Network businesses will remain resilient. In addition, although some areas of the valuation market remain depressed following the market uncertainty which followed the 2022 mini-budget, our Surveying & Valuation business remains very well-placed for medium-term growth, helped by recent contract wins and good progress made in developing new income streams.

We have made substantial progress in restructuring and re-focusing the Group's activities and will continue this work in 2023. Our very strong balance sheet allows us to continue to invest for the future with confidence, and I am excited about the Group's potential and look forward to reporting growth in 2024 and beyond.

David Stewart

Group Chief Executive Officer

12 April 2023

For further information, please contact:

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 around £46bn of mortgages in 2022. It represents over 10% of the total purchase and re-mortgage market with almost 2,900 financial advisers. PRIMIS was named Best Network, 300+ appointed representatives at the 2022 Mortgage Strategy Awards.

LSL is one of the UK's largest providers of surveying and valuation services, supplying seven out of the ten largest lenders in the UK, employing around 500 operational surveyors, and performing over 500,000 valuations and surveys per annum for key lender clients. e.surv was named Best Surveying Firm at the 2022 Mortgage Finance Gazette Awards and Best Surveyor at the 2022 Equity Release Awards with Mortgage Solutions.

LSL also operates a network of 182 owned and 127 franchised estate agency branches.

For further information please visit LSL's website: lslps.co.uk 

Notes:

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

2 Refer to note 5 of the Financial Statements for reconciliation of Group and Divisional Underlying Operating Profit to statutory operating (loss)/profit

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

4 Number of residential property transaction completions with value £40,000 or above, HMRC

Notes:

1 Refer to note 5 of the Financial Statements for reconciliation of Group and Divisional Underlying Operating Profit to statutory operating (loss)/profit

nm Not meaningful

FINANCIAL REVIEW

Overview

Group summary (P&L)

Group Revenue of £321.7m was 2% below the record revenue last year (2021: £326.8m), with Financial Services Division revenue up 4%, Surveying & Valuation revenue down 1% and Estate Agency revenue down 5%.

In the Financial Services Division, Financial Services Network revenue increased by 9% which was a positive performance in a broadly flat mortgage market. Financial Services Other revenue was in line with prior year as our D2C businesses were impacted by slower residential activity, offset by re-mortgage activity. Surveying & Valuation revenue was impacted in the aftermath of the UK mini-budget, illustrated by October YTD revenue running at 9% ahead of prior year whilst 1% back for the full year. Estate Agency revenue was back 5% in a market with purchase activity 15% lower.

Group Underlying Operating Profit1 was £36.9m compared to the record results posted last year (2021: £49.3m) and in line with 2019, the most recent comparable market. The Group Underlying Operating Profit of £22.7m in H2 was 3% above last year (2021: £22.0m), despite the adverse market impact on the Q4 Surveying & Valuation Revenue, as the Group returned to a more normalised profit profile with 62% of operating profit delivered in H2, in line with the pre-COVID-19 levels. During H2 the residential exchange pipeline converted as expected however front-end activity was materially lower, impacted by the UK mini-budget, resulting in the closing pipeline being below expectations.

Our strategic focus is on the Financial Services Network where Underlying Operating Profit1 increased by 8%. Financial Services Other posted a loss, impacted by lower activity in the purchase and new build markets, and included continued technology investment. Estate Agency Underlying Operating Profit was down against prior year due mainly to the impact of the smaller purchase transaction market. Unallocated central costs of £7.3m reduced by 3%.

On a statutory basis, Group operating loss was £(56.7)m (2021: profit £72.6m). The 2022 results include a £87.2m non-cash impairment charge for goodwill and other intangibles following the annual impairment review, as detailed later in this Financial Review, and 2021 results included the gain on sale of our holdings in two joint venture businesses sold during the year.

Operating expenditure

Total adjusted operating expenses2 increased by 2% to £285.7m (2021: £280.2m) with costs managed carefully, mitigating the impact of the inflationary cost environment with H2 2022 costs 5% below H1. Our emoluments increased by 2% in 2022, with annual pay and NI increases, and a cost of living award for lower paid staff, mitigated by headcount reductions in H2 2022 in response to market conditions. Property and related costs increased by 12%, reflecting energy price inflation which drove utilities costs up by £1.6m and prior year business rates relief. Other material costs, including IT, were largely protected by previously negotiated fixed-price long-term contracts.

Other operating income

Total other operating income was £1.3m (2021: £0.9m). Of this, rental income was £0.7m (2021: £0.9m), reducing year-on-year following the disposal during 2021 of several freehold properties previously leased out.

The fair value of units held in The Openwork Partnership LLP was reassessed to £0.7m and is recognised in other operating income. In 2021, there was a gain on sale of £1.1m generated from the disposal of the freehold properties.

(Loss) / income from joint ventures and associates

Losses from joint ventures and associates of £0.5m (2021: £0.7m profit) primarily relate to our equity share of Pivotal Growth which is still in a growth phase. The prior year income comprised our share of LMS and TM Group profits prior to the disposal of our shares in these investments and our share of set up costs of Pivotal Growth.

Share-based payments

The share-based payment charge of £2.0m (2021: £1.9m) consists of a charge in the period of £3.1m, offset by lapses and adjustments for leavers and options exercised in the period. The prior year included a lower charge of £2.6m, offset by lower lapse and leaver adjustments.

Amortisation of intangible assets

The amortisation charge for 2022 was £4.1m (2021: £4.5m). The year-on-year decrease was as a result of some lettings books acquisitions and intangible software investments becoming fully amortised during 2021.

Exceptional items

The exceptional gain of £0.7m (2021: £31.1m) relates to a release in the PI costs provision, as we continue to make progress with settling historic PI claims where actual settlement costs have been lower than expected. The prior year exceptional gain included the gains on disposals of the Group's joint venture holdings in LMS and TM Group.

Exceptional costs of £88.9m (2021: £2.0m), related principally to the outcome of the annual impairment review, which led to non-cash goodwill and other intangibles impairment of £87.2m (2021: £nil) in a number of subsidiaries3: Your Move and Reeds Rains (£42.0m), Marsh & Parsons (£27.7m), DLPS (£1.1m), Group First (£10.3m) and RSC (£6.1m).

The non-cash goodwill impairments result from the deterioration in the near-term outlook for cash flows due to market conditions and the significant increase in discount rates since the previous review, impacting Your Move and Reeds Rains and DLPS, and the strategic decision to sell Marsh & Parsons, Group First and RSC. The disposals of Marsh & Parsons, Group First and RSC were announced in January 2023.

Further exceptional costs of £1.7m (2021: £nil) were recognised as a result of 12 branch closures, as part of a restructuring programme in the Estate Agency Division.

Contingent consideration

The credit to the income statement in 2022 of £0.7m (2021: credit £0.7m), relates to the reduction of the contingent consideration liability for RSC and DLPS, based on revisions to profit forecasts.

Net finance costs

Net finance costs amounted to £2.4m (2021: £2.7m) and related principally to unwinding of the IFRS 16 lease liability of £1.4m (2021: £1.5m) and commitment and non-utilisation fees on the revolving credit facility of £1.0m (2021: £1.0m). Finance income increased to £0.1m (2021: £nil) resulting from increased interest received on funds held on deposit.

Loss before tax

Loss before tax was £59.1m (2021: profit before tax of £69.9m). The year-on-year movement is due to the non-cash impairments to goodwill and other intangibles during 2022, the lower Group Underlying Operating Profit, and the prior year exceptional gain of £29.4m on the sale of the investments in the LMS and TM Group joint ventures.

Taxation

The tax charge of £4.9m (2021: £8.0m) represents an effective tax rate of (8.3)%, which is higher than the headline UK tax rate of 19% largely as a result of the inclusion within the loss before tax of exceptional impairments to subsidiaries, which are not deductible for corporation tax purposes. Deferred tax assets and liabilities are measured at 25% (2021: 25%), the tax rate effective from 1 April 2023.

Earnings per Share4

Basic Earnings per Share was (62.3) pence (2021: 59.6 pence), with diluted Earnings per Share of (62.3) pence (2021: 59.2 pence). The Adjusted Basic Earnings per Share was 28.4 pence (2021: 37.7 pence), a decrease of 25%, with adjusted diluted Earnings per Share of 28.1 pence (2021: 37.4 pence).

1 Refer to note 5 of the Financial Statements for reconciliation of Group and Divisional Underlying Operating Profit to statutory operating (loss)/profit

2 Total adjusted operating expenses include employee costs, depreciation and other operating costs as shown in Group Income Statement

3 Refer to note 10 of the Financial Statements

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

DIVISIONAL REVIEW

Financial Services Division

Highlights

· Record Financial Services Network Underlying Operating Profit1 of £15.5m (2021: £14.4m) up 8%

· Record total lending of £45.6bn, up 11% (2021: £41.1bn)

· Further increase in share of UK purchase and re-mortgage market to 10.4%2 (2021: 9.6%), reflecting strength of Network mortgage advisers in re-mortgages, a segment we expect to increase further in importance in 2023

· Gross revenue per adviser3 up 4%

· Total LSL advisers increased to 2,867 (2021: 2,858)

· Total Financial Services Division Underlying Operating Profit1 was £13.3m (2021: £14.8m) reflecting further investment in technology and impact of lower purchase market on D2C brokerages subsequently sold to Pivotal Growth 

Financial overview

Total revenue reported was up 4% to £81.7m (2021: £78.5m). Core Financial Services Network Revenue grew by 9% year-on-year benefiting from higher adviser numbers and strong renewal volumes. Financial Services Other revenue was in line with last year due to stronger H2 (£1m ahead of 2021) in line with increased market activity. Financial Services Division Underlying Operating Profit was £13.3m (2021: £14.8m). On a statutory basis, operating loss was £6.8m (2021: profit £10.0m).

The Division's revenue mix by product continues to highlight the significance of our insurance business and its success in arranging insurance products both on a standalone basis and when needed at the time of a mortgage being arranged. In 2022, there remained a broadly equal split between mortgage related and insurance related revenue. The split of revenue by product type in 2022 was £36.5m for mortgage fees (2021: £33.7m), £34.2m for protection and insurance fees (2021: £35.2m) and £10.9m in other fees (2021: £9.6m).

Financial Services Network business

Gross purchase and re-mortgage completion lending increased by 11% to £32.7bn (2021: £29.5bn) representing an increased share of the lending market excluding product transfers to 10.4% (2021: 9.6%). Including product transfers, total gross mortgage lending was £45.6bn in 2022 (2021: £41.1bn). Gross revenues generated by the Financial Services Network business (including the TMA mortgage club) increased by 7% to £316.6m (2021: £295.9m).

Gross revenue per average adviser in 2022 was £93.9k (2021: £90.1k). Whilst AR firms in the network have been understandably cautious about growing adviser numbers in the midst of the economic and political uncertainty, and as a result the Financial Services Network business saw modest growth in adviser numbers, this indicates that through the turnover of advisers, there is a net improvement in the most productive.

Financial Services Network business focused heavily on helping member firms look after the mortgage needs of their existing customers during 2022, particularly during periods of rapidly changing interest rates. This deliberate focus helped member firms grow their revenue through increased volumes of re-mortgage and product switches, despite the decline in the housing market.

Underlying Operating Profit increased 8% to £15.5m (2021: £14.4m) with Underlying Operating margin decreasing marginally to 37% (2021: 38%) as we continue to invest in our businesses and some cost categories returned to levels more in line with pre-COVID-19 periods e.g. broker events and marketing support.

Financial Services Other

Financial Services Other generated an Underlying Operating Loss of £2.3m (2021: profit £0.4m), which is stated after our continued investment in the businesses that make it up, including costs of the TPFG contract and the Pivotal Growth joint venture.

As well as continued investment in the Mortgage Gym platform, we continued to invest in the Financial Services Network business technology platform (Toolbox), to deliver benefits to firms and their advisers and create further efficiencies and improved functionality. Financial Services Other D2C businesses were impacted by lower activity levels in the new purchase market but took advantage of the increased refinancing activity which peaked in H2 and was impacted in part by the UK mini-budget.

The Pivotal Growth joint venture was established in April 2021, with a net loss in 2022 of £0.5m after acquisition costs and overheads. The slower than expected momentum in acquisitions means it is still in the investment phase, and we expect a positive contribution in 2023.

Notes:

1 Refer to note 5 of the Financial Statements for reconciliation of Group and Divisional Underlying Operating Profit to statutory operating (loss)/profit

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

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

Surveying & Valuation Division

Highlights

· Surveying & Valuation Division once again performed strongly

· Despite the sudden and unexpected market disruption, Underlying Operating margin1 remained resilient at 22% (2021: 25%), and well ahead of the pre-COVID-19 period (2019: 19%)

· Underlying Operating Profit1 of £20.4m (2021: £23.6m), despite an estimated £5m profit impact from Q4 market disruption

· D2C and data services income increased by 73% to £3.8m

· Jobs performed was broadly in line with FY21 at 532k despite market disruption

Summary

The Surveying & Valuation Division's Underlying Operating Profit reduced by 14% compared to 2021, materially impacted by the disruption to mortgage lending in Q4 2022 as a result of political and economic uncertainty. Revenue growth for the first three quarters of FY22, immediately prior to the Government's mini-budget was 9% year-on-year against broadly flat lending market growth of 2%.

Surveyor capacity utilisation remains above historic levels, with the slight reduction compared to the prior year resulting from the market slowdown in Q4 with record levels of capacity utilisation to that point. Jobs per average Surveyor reduced slightly in the period to 1,065 (2021: 1,079) due mainly to the H2 graduate intake which is expected to drive a benefit in 2023 as these surveyors become fully operational. Underlying Operating margin reduced to 22% (2021: 25%), largely as a result of a 4% increase in operating costs linked to strategic headcount investment and inflationary cost pressures.

We estimate that we increased market share in 2022, while maintaining operational resilience and providing high-quality service. We were named Best Surveying Firm at the 2022 Mortgage Finance Gazette Awards and Best Surveyor at the 2022 Equity Release Awards with Mortgage Solutions. During the 12 months to 31 December 2022, one key supplier contract was renewed in addition to one renewal at the end of December 2021, increasing valuation instruction allocations. We also achieved increases in allocations from some existing lender clients. Almost two thirds of our total annual volume is currently secured for at least 18 months. Significant further progress was made with our strategic objective of developing income from private surveys and data, which increased by 73% to £3.8m.

Financial overview

Revenue reduced by 1% to £93.2m (2021: £93.7m), impacted by a material market slowdown in Q4. Surveying & Valuation Division revenue YTD October was 9% above the same period in 2021. Underlying Operating Profit reduced by 14% to £20.4m (2021: £23.6m). On a statutory basis, operating profit was £20.8m (2021: £24.7m).

Income per job increased by 1% to £175 (2021: £173), with the higher volume of jobs performed reflecting the improved capacity management with similar levels of operational surveyors. During 2022, 72% of the Division's jobs derived from its top five lender clients. 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 532,000, which was 2% lower than in 2021.

At 31 December 2022, the total provision for professional indemnity (PI) costs was £2.3m (31 December 2021: £3.9m). The Group continued to make positive progress in addressing historic PI claims and the number of new valuation claims provided for in the year remained very low.

The number of operational surveyors employed2 at 31 December 2022 was 512, which was an increase on 31 December 2021 at 489. Our graduate and trainee mentoring programmes continue to provide new productive surveyors, to alleviate any capacity constraints in the market.

Notes:

1 Refer to note 5 of the Financial Statements for reconciliation of Group and Divisional Underlying Operating Profit to statutory operating (loss)/profit

2 Full Time Equivalent (FTE)

Estate Agency Division

Highlights

· Estate Agency national market share1 increased to 1.30% (2021: 1.28%)

· Estate Agency Underlying Operating Profit2 of £10.5m (2021: £18.4m) in a reduced purchase market

· Underlying Operating Profit in H2 of £11.5m materially ahead of prior year (H2 2021: £5.9m)

Summary

As a result of the marginal increase in national market share, the residential sales income reduction was 12% compared to the prior year in a market that was 15% lower, with the higher pipeline entering the year also supporting the performance. H2 exchanges were in line with our previous expectations after the delays to pipeline conversion experienced in H1.

However, market activity slowed further in H2, driven by affordability issues. As a result, the residential sales pipeline entering 2023 of £15.3m has reduced materially from the record high in June of £26.7m and is 26% lower than the pipeline on 31 December 2021 (£20.7m). Lettings income increased 2% compared to the prior year and represented 43% (2021: 40%) of total Estate Agency Division income, due to an improved average rent in a market where the supply of new stock remained limited.

Financial overview

Revenue for the year of £146.8m was 5% behind prior year (2021: 154.6m), with residential sales income 12% below what was a year of unusually high activity due to the temporary reductions of stamp duty. Underlying Operating Profit was £10.5m, reflecting the lower residential market activity and inflationary costs pressures within the branch network, specifically higher energy costs and business rates now at pre-COVID-19 levels, with no rates relief in 2022. On a statutory basis, operating loss was £61.8m (2021: profit £46.5m) due to exceptional goodwill impairment charges of £71.4m in the period and gains from the sale of joint ventures during 2021 of £29.4m.

Residential Sales

Residential Sales exchange income decreased by 12% to £63.5m (2021: £71.7m). The Estate Agency Division consolidated the market share gains made during 2021, broadly maintaining share of instructions in the locations we trade, and with marginal growth of our market share of housing transactions on a national level. The residential sales pipeline (including Marsh & Parsons) decreased to £15.3m at 31 December 2022 (31 December 2021: £20.7m).

Conversion of the residential exchange pipeline remained slow throughout the year, impacting H1 2022 performance in particular. H2 2022 saw fewer new properties coming to market and lower levels of sales agreed. There was also a trend towards an increase in the number of fall-throughs, largely affecting more recently agreed sales, both of which will impact performance in Q1 2023.

Lettings

In the Lettings market there has been a very limited supply of new instructions. Our focus has therefore been on reletting and retaining our managed property portfolio. The total number of managed properties at 31 December 2022 was 23,881, slightly below the 24,372 at same date in 2021. Stronger average rental prices resulted in like-for-like lettings income up 4% year-on-year at £63.3m.

Other income

Other income was down 4% to £20.1m (2021: £20.8m) reflecting the impact of the lower exchange volumes on conveyancing and financial services income directly linked to exchange volumes. Asset management was 17% ahead of 2021. However market repossession volumes remain low, albeit ahead of the exceptionally low market in 2021 which was severely impacted by COVID-19.

Notes:

1 Number of residential property transaction completions with value £40,000 or above, HMRC

2 Refer to note 5 of the Financial Statements for reconciliation of Group and Divisional Underlying Operating Profit to statutory operating (loss)/profit

Balance Sheet Review

Goodwill

The carrying value of goodwill is £56.5m1 (31 December 2021: £160.9m) reflecting the non-cash impairment of £87.0m in Your Move and Reeds Rains, Marsh & Parsons, Group First, RSC, and DLPS at 31 December 2022. During December 2022 the Group made the strategic decision to sell both Group First and RSC to its joint venture Pivotal Growth and separately made the decision to sell Marsh & Parsons to Dexters. This resulted in the reclassification of these businesses as held for sale, with a reduction of £17.3m in goodwill. The sales of all three businesses were announced in January 2023.

Other intangible assets and property, plant and equipment

Total capital expenditure in the year amounted to £4.9m (2021: £6.9m), primarily reflecting the continued investment in technology in the year, including £2.0m (2021: £2.2m) for further development of the Toolbox platform and other technologies in the Financial Services Division. The higher prior-year expenditure also reflected investment by the Estate Agency Division in third-party property software, IT infrastructure investment, and an element of spend deferred from 2020, when cash conservation measures had been taken.

Financial assets and investments in joint ventures and associates

Financial assets

Financial assets of £1.0m at 31 December 2022 (2021: £5.7m) comprise investments in equity instruments in unlisted companies. The carrying value of the Group's investment in Yopa at 31 December 2022 has been assessed as £nil (2021: £4.5m), with the reduction recognised through the Statement of Comprehensive Income. In determining the carrying value the Group considered both the historic and current trading performance of Yopa, which continued to be loss making and the general market share decline of hybrid estate agencies. In January 2023, the Group agreed to sell its shares in Yopa for £nil consideration based on third party valuations provided to the existing shareholders.

The carrying value of the Group's investment in VEM at 31 December 2022 has been assessed as £0.2m (2021: £0.7m). Our valuation is based on a four-year weighted EBITDA multiple applied to actual and forecast profits, with the reduction recognised through the Statement of Comprehensive Income. In March 2023, the Group agreed to sell its shares in VEM for £0.2m consideration.

During the period the fair value of units held in The Openwork Partnership LLP was reassessed to £0.7m (31 December 2021: £nil), with the gain recognised in other operating income.

Joint ventures

In April 2021 the Group established the Pivotal Growth joint venture and holds a 47.8% interest at 31 December 2022. The joint venture is accounted for using the equity method and is held on the balance sheet at £5.1m at 31 December 2022 (31 December 2021: £1.6m), representing the Group's equity investment in Pivotal Growth during the period, less our share of losses after tax 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.

Bank facilities/ Liquidity

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

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

At 31 December 2022, Net Cash was £40.1m (31 December 2021: Net Cash £48.5m). The net decrease in cash and cash equivalents of £8.4m in 2022 included further investment in Pivotal Growth (£4.0m), capital expenditure of £4.9m (2021: £6.9m), a share buyback programme (£4.0m), the loan of £5.0m to the EBT for the acquisition of LSL shares to satisfy employee share schemes, payment of the 2021 final and 2022 interim dividends of £11.8m (2021: £4.2m dividends paid) and reduced corporation tax payments of £6.1m (2021: £8.5m). Provisions also decreased by £0.8m (2021: decrease of £3.2m), due to the positive progress in addressing historic PI claims.

The Group generated adjusted cash from operations2 of £28.8m (2021: £37.7m). After adjusting for tax payment deferrals agreed with HMRC relating to 2020, the cash flow conversion3 rate was 78%. The 2021 conversion of 106% was supported by significantly higher Estate Agency revenues, with high immediate cash drop-through.

The Financial Services Network business has a regulatory capital requirement associated with its regulated revenues. The regulatory capital requirement was £5.9m at 31 December 2022 (31 December 2021: £4.9m), with a surplus of £24.9m (31 December 2021: £14.2m).

Contingent consideration liabilities

Contingent consideration liabilities at 31 December 2022 were £2.3m (31 December 2021: £3.0m). Contingent consideration liabilities relate primarily to the cost of acquiring the remaining shares in RSC. The year-on-year reduction reflects an update to forecasts in both RSC and Direct Life Quote Holdings Limited, and a small part-settlement of the latter. Ahead of the disposal of RSC in January 2023, we settled the contingent consideration of £2.3m.

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 Accounting Standards (IAS)

The Financial Statements have been prepared in accordance with UK-adopted IAS.

1 Refer to note 10 of the Financial Statements

3 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 2022

Group Statement of Comprehensive Income

for the year ended 31 December 2022

Group Balance Sheet

as at 31 December 2022

Group Statement of Cash Flows

for the year ended 31 December 2022

Closing cash and cash equivalents includes £3.4m (2021: £nil) presented in assets held for sale on the Group Balance Sheet (see note 11). 

Group Statement of Changes in Equity

for the year ended 31 December 2022

During the year ended 31 December 2022, the Trust acquired 1,351,000 LSL Shares. During the period, 890,146 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the Trust. LSL received £0.8m on exercise of these options.

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.

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 2023 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 Directors confirm that, to the best of their knowledge, the Financial Statements, prepared in accordance with UK-adopted IAS, 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 2021. 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, principal 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 2024. 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 2022.

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:

*2021 lettings revenue has been restated to reclassify £27.7m of revenue from services transferred over time to services transferred at a point in time. There has been no change in the Group's accounting policy in the prior or current period.

4. Segment analysis of revenue and operating profit

For the year ended 31 December 2022 LSL has reported three operating segments: Financial Services; Surveying & Valuation; 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 & Valuation segment provides a valuations and professional surveying service of residential properties to both lenders and individual customers, as well as data services to lenders; and

- 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 segments 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 table presents revenue and profit information regarding the Group's reportable segments for the financial year ended 31 December 2022 and financial year ended 31 December 2021 respectively.

Year ended 31 December 2022

Group Underlying Operating Profit is as defined in note 5 to these condensed Financial Statements.

Unallocated net assets comprise intangible assets and plant and equipment £2.0m, other assets £6.2m, cash £36.8m, accruals and other payables £2.2m current and deferred tax liabilities £2.0m. Unallocated result comprises costs relating to the Parent Company.

Year ended 31 December 2021

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.

5. Group and Divisional Underlying Operating Profit

Group and Divisional Underlying Operating Profit are alternative performance measures (APMs) used by the Directors and Group Management to monitor performance of operating segments against budget. It is calculated as profit/(loss) before tax adjusted for the items set out below.

Year ended 31 December 2022