Lsl Prop Regulatory News (LSL)

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

HALF YEAR RESULTS TO 30 JUNE 2022

HIGHLIGHTS

Record revenue in Financial Services Network and Surveying & Valuation highlighting benefits of diversification strategy and reduced exposure to housing market cycles

· Financial Services Network Underlying Operating Profit1,2 in line with 2021 record

· Highest first half Underlying Operating Profit1,2 in Surveying & Valuation for 10 years

· Financial Services Network revenue up 10% year-on-year in substantially smaller mortgage and protection markets

· Record Surveying revenue of £50.5m, up 9% over the previous record in H1 2021

· LSL's share of the total UK purchase and re-mortgage market increased to 10.1%3 (H1 2021: 9.0%)

· Financial adviser numbers increased to 2,930 at 30 June 2022 (30 June 2021: 2,744) with strong financial advisor recruitment pipeline

· Significant further progress in strategic objective of developing income from private surveys and data, which increased by 73% to £1.9m

Estate Agency retained market share gains made in 2021, building a record pipeline to carry into H2

· The Estate Agency Division consolidated the market share gains made during 2021, maintaining share of instructions in the locations we trade, and growing our market share of housing transactions on a national level

· Residential sales exchange pipeline conversion speed remained extremely slow across the market principally due to the continuing industry-wide capacity issues in conveyancing, which impacted residential exchange income which contributed to an Underlying Operating Loss1,2 of £1.0m in H1 2022. Had the residential pipeline exchanged at its normal conversion speed, it is estimated that Estate Agency Underlying Operating Profit would have been over £6m higher

· The residential sales exchange pipeline grew significantly and now stands at a record level of £26.7m (31 December 2021: £20.7m, 30 June 2021: £21.2m)

Resilient financial performance reflects expected return to usual phasing, with momentum established and Group well positioned for strong H2. The impact on H1 profits of delayed residential sales conversion in Estate Agency is estimated at over £6m with additional amounts in Financial Services

· The split of H1:H2 profit in 2022 is expected to revert to a more typical profile with a significant skew to H2, after record housing transactions in H1 2021, and this is reflected in Group Underlying Operating Profit4 in H1 2022 of £14.2m (H1 2021: £27.3m). On a statutory basis, Group operating profit was £8.7m (H1 2021: £26.7m)

· Surveying & Valuation Division delivered an extremely strong performance with Underlying Operating Profit1,2 up 14% to £13.1m (H1 2021: £11.4m), and Underlying Operating Margin1 improving to 26% (H1 2021: 25%)

· Financial Services Network business reported Underlying Operating Profit1,2 of £7.5m in line with the 2021 record (H1 2021: £7.4m) which was a very robust performance in substantially smaller mortgage and protection markets, and delivered during a period of ongoing investment in the business

· Estate Agency Division comparative financial performance reflected the significantly reduced market activity against 2021 which was boosted substantially by the Stamp Duty deadline, the significant delays in conversion of residential sales exchange pipelines and cost-inflationary pressures. This led to an Underlying Operating Loss1,2 of £1.0m in H1 2022 (H1 2021: profit of £12.5m). The estimated profit impact in Estate Agency in H1 2022 of the delayed conversion is over £6m, which highlights the strong underlying performance of the Group as a whole

· Notwithstanding the significant impact on profits of delayed residential sales conversions, Group Underlying Operating Profit in H1 2022 was 17% above H1 2019, whilst residential market transaction volumes were at more similar levels with conversion much slower, highlighting the Group's reduced exposure to housing market volatility

Strategy remains on track with Group well placed to deliver increased profitability in H2 and beyond

· Momentum in both the Financial Services Network business and Surveying & Valuation, with a record residential sales exchange pipeline expected to support H2 2022 profit materially ahead of H1 2022

· Net cash at 30 June 2022 of £30.7m (30 June 2021: £17.0m), providing flexibility to make further investments to support growth

· We will continue to invest in capability and technology across the Financial Services Division in the second half of the year with new technology to be rolled out to member firms

· Pivotal Growth, LSL's financial services Joint Venture with Pollen Street Capital, has now announced four acquisitions and with a strong deal pipeline in place, we remain excited about its potential

· The trajectory in the Financial Services Network business and the opportunities we have identified in Surveying & Valuation continue to offer opportunities for growth and we remain confident that our strategy remains on track

Current trading and outlook

· The Financial Services Network business is trading strongly with mortgage completions in July beating the previous monthly record set in June 2021

· Very strong performance continues in Surveying & Valuations

· Estate Agency front end sales activity remains stable with a good level of buyer demand 

· The conversion of residential sales pipeline remains very slow, a trend we expect to continue throughout H2

· The consequence of continuing slow pipeline conversion will be to delay profit on some H2 activity into 2023 and as result we now anticipate full year profits to be lower than our previous expectations whilst remaining significantly above the pre-COVID 19 performance reported in 2019

· The benefits of the pipeline built up at 30 June 2022 will be realised in the second half of the year and we expect that H2 Operating Profits will be substantially stronger than H2 2021 and H2 2019

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

"These results show that our strategy is on track and that LSL continues to trade strongly. Our Surveying & Valuation and Financial Services businesses delivered record revenues and our Estate Agency Division retained the market share gains made in 2021, in doing so building a strong residential sales pipeline as significant profits were delayed by the continuing slow speed of exchange experienced across the market. We are well placed to deliver a strong performance in the second half of the year and to grow in 2023 as we increasingly reap the benefits of our financial services led growth strategy."

This announcement has been determined to contain inside information.

Notes:

1 Divisional Underlying Operating Profit and Divisional Underlying Operating Margin are stated on the same basis as Group

2 Refer to note 4 of the Financial Statements for reconciliation of Divisional Underlying Operating Profit to statutory operating profit

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

4 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)

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 14 to the Financial Statements for the calculation

nm not meaningful

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Notes on LSL

LSL is one of the largest providers of services to mortgage intermediaries and mortgage and protection advice to estate agency customers, completing around £41bn of mortgages in 2021. It represents around 10% of the total purchase and re-mortgage market with over 2,900 financial advisers. PRIMIS was named Best Network by Money Marketing in their 2021 awards and 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 225 owned and 127 franchised estate agency branches.

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

Group Chief Executive's Review

Our financial performance in the first half of 2022 highlights the benefits of our strategy to further reduce the Group's exposure to housing market cycles. Although our H1 2022 results were impacted significantly by continuing market-wide delays in the rate of residential sales exchanges, the result of which was to delay profits by over £6m, Group Underlying Operating Profit1 of £14.2m was significantly higher than the £12.2m we reported in H1 2019, the most recent year when housing market conditions were comparable.

We expect that the H1:H2 profit split will revert to its long-term profile, in which we earn the majority of profits in the second half of the year. As a result of this re-phasing, and the delay in residential sales conversion, the first half Underlying Operating Profit was below the £27.3m reported in H1 2021, when volumes were boosted significantly by the Stamp Duty holiday. On a statutory basis, Group operating profit was £8.7m (H1 2021: £26.7m).

Our Financial Services Network business is at the heart of our strategy. The number of advisers in our Network has increased consistently over many years, illustrated by the growth from 2,321 to 2,858 over the three years to 31 December 2021. The number of advisers increased further to 2,930 at 30 June with a strong pipeline in place for further growth during the rest of the year. This total is yet to reflect benefit from acquisitions by Pivotal Growth, our joint venture "buy-and-build" mortgage broker, which we expect to boost membership further.

Small, independent mortgage brokers typically perform well in more difficult market conditions, and this can be seen in the strong performance of our Financial Services Network business. Our brokers arranged purchase and re-mortgage completions totalling £15.2bn, representing an increase of 11% over 2021 in a smaller overall market (H1 2022: £151.4bn, H1 2021: £168.5bn). This represents our highest-ever market share2 of 10.1%, up from 9.0% last year. There was a general shift away from house purchase to re-mortgage business, as consumers sought to secure their payments in the light of increased economic uncertainty and rising interest rates. Across the market, this was reflected in lower protection sales, but we estimate that LSL advisers increased their protection market share further, building on past success we have had in increasing the focus on this area.

This strong revenue performance and further growth in membership helped our Financial Services Network businesses deliver a half year Underlying Operating Profit3 of £7.5m, in line with the record performance in H1 2021 of £7.4m, and ahead of the £6.9m reported in H2 2021, indicating the continued momentum in this business. These results would have been stronger had the mortgage and protection cases relating to delayed residential sales exchanges been reflected in the half year.

Given the significant potential for further growth offered by the Financial Services Network business, we have continued to invest in building our capability, including developing Mortgage Gym technology for our Financial Services Network members. We will start to roll out this enhanced functionality later this year.

In our AGM statement, we noted that Pivotal Growth had been slower to complete deals than we initially expected, and, in the short term, this had increased costs and limited its contribution to our Financial Services Network business. I am pleased to report that Pivotal Growth has now announced four acquisitions and we remain excited about its prospects.

I am delighted to say that our Surveying & Valuation business performed very strongly, delivering record half-year performance. In a flat valuations market, we carried out more jobs whilst continuing to build on the efficiency improvements reported in 2021. Underlying Operating Profits3 increased by 14% to £13.1m (H1 2021: £11.4m), with an Underlying Operating Profit Margin3 of 25.9% (H1 2021: 24.7%). This is a very significant increase on the 14.8% we reported in 2019, demonstrating the material improvements we have made in this business.

I am particularly encouraged by the rapid growth in our Direct-to-Consumer and data services revenue streams in our Surveying & Valuation business, with income increasing by 73% to £1.9m (H1 2021: £1.1m) and further growth targeted. A key element of this improvement to date has been referrals from our Financial Services Network members, demonstrating the opportunities we have to benefit more widely from our market-leading distribution position. We will shortly launch a new Direct-to-Consumer survey website and will continue to develop our new data revenue streams, which we believe has exciting potential for further growth.

Our Estate Agency business also traded very well, maintaining lettings income, and holding on to the residential sales market share gains made in 2021 in the areas in which we trade and increasing our national market share. However, continued market-wide delays in completing agreed sales means that much of the benefit of this good trading is yet to be reflected in income. The Division reported an Underlying Operating Loss3 of £1.0m (H1 2021 Profit: £12.5m). The prior year performance was significantly boosted by the exceptional volume generated by the Stamp Duty holiday. This performance should be assessed in light of the very substantial increase in the residential sales pipeline to £26.7m at 30 June, above our previous record of £26.4m in May 2021, just prior to the Stamp duty deadline. Had agreed sales exchanged at a more usual rate, Underlying Operating Profit would have been over £6m higher, a result which would have been better than the Underlying Operating Profit of £4.0m for the same period in 2019, where market conditions and the split between H1 and H2 profitability was relatively similar to the current year.

Strong Balance Sheet

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 & Share Buy Back

Our Dividend policy is to pay out 30% of Group Underlying Operating Profit1 after finance and normalised tax charges and the Board has declared an interim dividend of 4.0 pence per share (H1 2021: 4.0p).

The ex-dividend date for the interim dividend is 11 August 2022, with a record date of 12 August 2022 and a payment date of 16 September 2022. Shareholders can elect to reinvest their cash dividend and purchase existing shares in LSL through a dividend reinvestment plan. The election date is 25 August 2022.

In April 2022, we announced the commencement of a share buyback programme of up to £10.0m, which has been extended to 30 Sept 2022, with repurchased shares placed into Treasury. At 30 June 2022, there were 504,273 shares being held in Treasury for a total consideration of £1.8m.

Looking Ahead

I am encouraged by the strong growth we have reported in Surveying & Valuation and by the very resilient performance of our Financial Services Network business in smaller markets. Our Estate Agency business has also performed very well, retaining previous market share gains, and we enter the second half of the year with a record pipeline of pending exchanges.

Current trading is also encouraging. In July, mortgage completions in our Financial Services Network business were at their highest level ever. The Surveying & Valuations division continues to perform strongly and front-end sales activity within Estate Agency is stable with good levels of buyer demand.

The conversion of residential sales pipeline remains very slow, a trend we expect to continue throughout the second half. The consequence of this will be to delay expected profit on some H2 activity into 2023 and as a result we now anticipate full year profits to be lower than our previous expectations whilst remaining significantly above the pre- COVID 19 performance reported in 2019. The benefits of the pipeline built up at 30 June 2022 will be realised in the second half of the year and we expect that H2 Operating Profits will be substantially stronger than H2 2021 and H2 2019.

LSL has an exciting future. Our Estate Agency business is trading well having gained market share and built a record pipeline. The Financial Services Network business continues to grow and is now responsible for over 10% of mortgage advice in the UK providing an unrivalled distribution capability, offering significant opportunities to grow in existing and new markets. In Surveying & Valuation we have been able to win new business and significantly improve efficiency whilst emerging data services provide an exciting opportunity for growth.

I believe that our resilient performance and the growth expected over the second half of the year and beyond demonstrates that we have the right strategy in place. I am clear that the Group has significant potential and I look forward to reporting further progress in the future.

David Stewart Group Chief Executive Officer 2 August 2022

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

3 Divisional Underlying Operating Profit and Divisional Underlying Operating Margin are stated on the same basis as Group

FINANCIAL REVIEW

Notes:

1 Divisional Underlying Operating Profit and Divisional Underlying Operating margin are stated on the same basis as Group

2 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)

3 Refer to note 4 of the Financial Statements for reconciliation of Divisional Underlying Operating Profit to statutory operating profit

nm Not meaningful

Group summary

In the context of the H1 residential exchange transactions market being down 29% year on year and the mortgage lending market being down 10%, the Group results in the first half demonstrated the resilience of our Financial Services Network business and the significant progress made in Surveying & Valuation. The Financial Services Network business profit was in line with the very strong performance in H1 2021. The Surveying & Valuation Division delivered the highest ever revenues in a single half and the highest profit in over 10 years. The financial performance in H1 across Financial Services and Surveying & Valuation is in line with the Board's expectations.

The Estate Agency Division and, to a lesser extent, our Financial Services D2C businesses were impacted by lower activity levels in the new purchase market and continued delays in conversion of our residential sales pipelines caused by conveyancing issues in the market. We have yet to see evidence of an improvement in these issues which we had expected to ameliorate during H1.

We have absorbed inflationary increases in operating expenditure, particularly in the Estate Agency Division, and we have continued to invest in our Financial Services Division businesses. 

Group results

Group Revenue for the 6 months to 30 June 2022 was £160.9m, only slightly behind the record revenue last year (H1 2021: £166.5m). Financial Services Network Revenue increased by 10% and Surveying & Valuation Revenue increased by 9% on the same period in 2021. These increases were offset by a 13% reduction in Estate Agency and 5% reduction in Financial Services Other Revenue, both impacted by lower new purchase activity and conveyancing delays. If the residential sales pipeline had converted at pre-COVID 19 rates, Revenue would have been at record levels of c.£169m.

Group Underlying Operating Profit1 for the 6 months to June 2022 was £14.2m, which whilst materially lower than the record results posted last year (H1 2021: £27.3m), was 17% higher than the equivalent period in 2019, the most recent comparable market, and would have been over £6m higher had residential sales conversion been at historical rates, which would have been a profit over £20m, behind only the record-breaking profit in H1 2021. On a statutory basis, Group operating profit was £8.7m (H1 2021: £26.7m).

Total adjusted operating expenditure

Total adjusted operating expenses increased in the 6 months to 30 June 2022, by 5% to £147.6m (H1 2021: £140.9m). The majority of this increase was due to a growth of more than £4m in employee costs particularly in headcount investment in the Financial Services Network business to support growth, annual pay awards across the Group and reflecting the increase in employers NIC from April 2022. Additionally, during H1 2022, the Group returned to a more normalised level of operating expenses following the disruption of COVID-19 on ways of working over the previously reported periods. Furthermore, there have been cost increases in other areas, notably, utilities.

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

Other income was £1.1m (H1 2021: £0.5m). Rental income was £0.3m (H1 2021: £0.5m), reducing year on year following the disposal during 2021 of several freehold properties previously leased out. During the period the fair value of units held in The Openwork Partnership LLP was reassessed to £0.8m and is recognised in other operating income.

Income / (loss) from joint ventures and associates

Losses from joint ventures and associates of £0.2m (H1 2021: £0.9m profit) primarily relate to our share of set up costs of Pivotal Growth. The prior year income mainly comprised our share of LMS and TM Group profits prior to the disposal of our investments.

Share-based payments

The share-based payment charge of £1.5m (H1 2021: £0.5m) consists of a charge in the period of £1.8m, offset by lapses and adjustments for leavers and options exercised in the period. The lower relative charge in 2021 largely resulted from scheme lapses offsetting existing scheme charges.

Amortisation of intangible assets

The amortisation charge for H1 2022 was £2.1m (H1 2021: £2.7m). The year-on-year decrease was as a result of some Lettings books and intangible software investments reaching full amortisation during 2021.

Exceptional items

There were exceptional costs of £2.0m in H1 2022 (H1 2021: £1.7m), reflecting an impairment of goodwill in Marsh & Parsons2. Prior year exceptional gains of £4.3m (H1 2022: £nil) related to the disposal of the Group's joint venture holding in LMS and a release in the PI Costs provision, netted off against the Shareholder circular and restructuring costs.

Contingent consideration

The credit to the income statement in H1 2022 of £0.1m (H1 2021: charge £0.04m), relates mainly to the reassessment of the contingent consideration liability for RSC, due to be paid in 2023.

Net finance costs

Net finance costs amounted to £1.3m (H1 2021: £1.3m) and related principally to unwinding of the IFRS 16 lease liability of £0.7m (H1 2021: £0.7m) and interest and fees on the revolving credit facility of £0.5m (H1 2021: £0.5m).

Profit before tax

Profit before tax was £7.4m (H1 2021: £25.5m). This decrease was largely driven by the reduction in Group Operating Profit, and the prior year exceptional gain on the sale of the investment in the LMS.

Taxation

The tax charge of £1.6m (H1 2021: £2.9m) represents an effective tax rate of 21.6%, slightly higher than the headline UK tax rate of 19% largely as a result of disallowable expenses. Deferred tax assets and liabilities are measured at 25% (2021: 25%), the tax rate effective from 1 April 2023.

Earnings Per Share3

The Basic Earnings Per Share was 5.7 pence (H1 2021: 21.8 pence), with diluted Earnings Per Share of 5.7 pence (H1 2021: 21.4 pence). The Adjusted Basic Earnings Per Share was 10.7 pence (H1 2021: 20.9 pence), a decrease of 49%, with adjusted diluted Earnings Per Share of 10.7 pence (H1 2021: 20.6 pence).

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 10 of the Financial Statements

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

DIVISIONAL REVIEW

Financial Services Division

Summary

Financial Services Division reported an increase in revenue of 2% in H1 2022 compared to the same period in 2021 in a lending market which was 10% lower. The Financial Services Network Underlying Operating Profit was in line with the record prior year. This was offset by a decrease in Financial Services Other profit due to a materially smaller purchase market, resulting in overall divisional Underlying Operating Profit for the half year of £6.1m (H1 2021: £7.8m).

Total financial advisers at 30 June 2022 were up 186 to 2,930 on the same time last year, a 7% increase. Our share of the UK mortgage market grew to 10.1%1, further consolidating our position as the UK's largest mortgage and insurance network2.

We continued to support the future growth of our Financial Services Division, with investment during the year in technology and capability, across our Network and D2C businesses. We also announced two acquisitions in the Pivotal Growth joint venture in H1, and one in July taking the total to four. Whilst suppressing profits in the short term, the investment made and future expected Pivotal growth will start to show tangible returns, with more material benefits expected in future periods.

Financial overview

Total revenue reported for the period was up 2% to £39.9m (H1 2021: £39.2m). Core Financial Services Network Revenue grew by 10% year-on-year benefiting from higher advisor numbers. Financial Services Other revenue decreased by £1.7m versus the same period last year mainly as a result of the materially smaller purchase market. Financial Services Division Underlying Operating Profit3 was £6.1m (H1 2021: £7.8m). On a statutory basis, operating profit was £4.9m (H1 2021: £3.9m).

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 as well as when needed at the time of a mortgage being arranged. In H1, these remain broadly an equal split between mortgage related and insurance related revenue. The split of Revenue by product type in H1 2022 was 39% for mortgage fees (H1 2021: 39%), 42% for insurance fees (H1 2021: 45%) and 19% in other fees (H1 2021: 16%).

Financial Services Network business

Our gross purchase and re-mortgage completion lending increased by 11% to £15.2bn for the period (H1 2021: £13.7bn) representing an increased share of the lending market excluding product transfers2 to 10.1% (2021: 9.0%). Including product transfers, total gross mortgage lending was £20.5bn in H1 2022 (H1 2021: £19.3bn).

Gross revenues generated by the Financial Services Network business (including the TMA mortgage club) increased by 1% to £146.2m (H1 2021: £144.1m).

Gross revenue per average adviser in H1 was £43.6k (H1 2021: £46.6k). In general, advisers joining the Financial Services Network business 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 the rest of 2022 will therefore benefit from a full year of the advisers who joined in H2 2021 and H1 2022.

Underlying Operating Profit3 increased marginally to £7.5m (H1 2021: £7.4m) with Underlying Operating margin4 decreasing to 36% (H1 2021: 40%) as we continue to invest in our businesses and brought some cost categories in line with pre- COVID 19 levels e.g. broker events and marketing support.

Financial Services Other

Financial Services Other generated an Underlying Operating Loss3 of £1.3m (H1 2022: 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 set up costs. As previously reported, the TPFG contract will continue to act as a drag on profitability in 2022. As well as significant 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 and continued delays in conversion of our residential sales pipelines caused largely by conveyancing issues in the market.

The Pivotal Growth joint venture was established in April 2021, with a net loss in H1 2022 of £0.2m after acquisition costs and overheads. The slower than expected momentum in acquisitions has prevented reporting a profit as deal costs outweigh income but a positive contribution is expected in 2023.

Surveying & Valuation Division

Summary

The Surveying & Valuation Division's Underlying Operating Profit3 increased by 14% in the 6 months to 30 June 2022 in comparison to the same period in 2021, in a flat market for mortgage and re-mortgage approvals. Surveyor capacity utilisation continues to improve, with 8% more jobs performed whilst employing similar levels of operational surveyors. Underlying Operating margin4 increased to 26% for the period (H1 2021: 25%), due mainly to improved utilisation and a leading position in the growing higher margin equity release segment.

We estimate that we increased market share in H1 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 6 months to 30 June 2022, one key supplier contract was renewed in addition to one renewal at the end of December 2021, increasing allocations. We also achieved increases in allocations from some existing lender clients. More than three quarters of our total annual volume is currently secured for two or more years. Significant further progress was made in our strategic objective of developing income from private surveys and data, which increased by 73% to £1.9m.

Financial overview

Revenue increased by 9% to a record £50.5m (H1 2021: £46.2m). Underlying Operating Profit3 increased by 14% to £13.1m (H1 2021: £11.4m) the highest for 10 years. On a statutory basis, operating profit was £12.9m (H1 2021: £12.4m).

Income per job increased by 1% to £175 (H1 2021: £173), with the higher volume of jobs performed reflecting the improved capacity management with similar levels of operational surveyors. During H1 2022, 73% 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 288,000, which was 8% greater than the same period in 2021.

At 30 June 2022, the total provision for professional indemnity (PI) costs was £3.9m (31 December 2021: £3.9m, 30 June 2021: £5.5m). The Group continued to make positive progress in addressing historic PI claims and the number of new valuation claims provided for in the period remained very low.

The number of operational surveyors employed (FTE) at 30 June 2022 was 497, which was in line with June 2021 and an increase on 31 December 2021 at 489. The increase was as a result of our graduate and trainee mentoring programmes, which continue to provide new productive surveyors, to alleviate any capacity constraints in the market.

Estate Agency Division

Summary

Residential sales exchange pipeline conversion rates remained extremely slow across the market principally due to the continuing industry-wide capacity issues in conveyancing, which impacted residential exchange income and contributed to an Underlying Operating Loss3 of £1.0m in H1 2022. The residential sales exchange pipeline grew significantly and now stands at a record level of £26.7m, having increased by around £6m since 31 December 2021.

Financial overview

Revenue for the 6 months to 30 June 2022 at £70.6m was 13% behind the period last year, a period of unusually high activity ahead of the end of the Stamp Duty deadline (H1 2021: £81.2m). Underlying Operating Loss3 was £1.0m for the 6 months to 30 June 2022, reflecting the residential market dynamics described above with lower new purchase activity and conveyancing issues. If the sales pipeline had converted at pre-COVID rates, residential and ancillary revenue would have been c.£8m higher, with a total Divisional revenue of c.£79m. Had residential sales agreed exchanged at this more usual rate, Underlying Operating Profits would have been over £6m higher, a £1m increase on the £4.0m achieved in H1 2019. On a statutory basis, operating loss was £4.3m (H1 2021: profit £15.5m).

Residential Sales

Residential Sales exchange income decreased by 24% to £30.8m (H1 2021: £40.4m). The Estate Agency Division consolidated the market share gains made during 2021, maintaining share of instructions in the locations we trade, and growing our market share of housing transactions on a national level. The residential sales pipeline increased significantly to £26.7m at 30 June 2022 (an LSL record, previous high at £26.4m in May 2021 just prior to the Stamp Duty deadline), with no indication of a material increase in fall-throughs.

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 30 June 2022 was 24,376, slightly below the same date in 2021. Therefore, total Lettings income is flat year-on-year at £30.1m supported by average rent increases across all brands.

Other income

Other income was down 10% to £9.7m (H1 2021: £10.8m) reflecting the impact of the slowdown in exchange volumes as conveyancing and financial services income directly linked to exchange volumes. Asset Management is slightly ahead of 2021 however market repossession volumes remain very low, albeit ahead of the exceptionally low 2021 which was severely impacted by COVID-19.

Notes:

1 New mortgage lending by purpose of loan, UK (BOE) - Table MM23 - May YTD

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

3 Refer to note 4 of the Financial Statements

4 Divisional Underlying Operating Profit and Divisional Underlying Operating Margin are stated on the same basis as Group

BALANCE SHEET REVIEW

Goodwill

The carrying value of goodwill is £158.9m (H1 2021: £160.9m) reflecting an impairment of £2m which was identified and recognised in Marsh & Parsons at 30 June 20221.

Other intangible assets and property, plant and equipment

We continued to invest in technology during the first half of the year and total capital expenditure in the half amounted to £2.2m (H1 2021: £3.0m), including £1.1m (H1 2021: £0.6m) for further development of the Toolbox platform in the Financial Services Division and investment by the Estate Agency Division in third-party property software.

Financial assets and investments in joint ventures and associates

Financial assets

Financial assets of £6.1m at 30 June 2022 (31 December 2021: £5.7m, 30 June 2021: £7.7m) 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 reduction of £0.4m has been made through the Statement of Other Comprehensive Income. The carrying value of the Group's investment at 30 June 2022 is £4.1m (31 December 2021: £4.5m, 30 June 2021: £6.5m). During the period the fair value of units held in The Openwork Partnership LLP was reassessed to £0.8m (31 December 2021: £nil, 30 June 2021: £nil).

Joint ventures

In April 2021 the Group established the Pivotal Growth joint venture and hold a 47.8% interest at 30 June 2022. The joint venture is equity accounted and is held on the balance sheet at £2.3m at 30 June 2022 (31 December 2021: £1.6m, 30 June 2021: £0.3m), representing equity investment during the period less our share of profit/losses after tax for the period. Pivotal Growth announced two further acquisitions in H1 2022 and another during July 2022, taking the total to four, one of which is subject to change of control approval by the FCA.

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 30 June 2022, TMG was held at £3.0m under non-current assets held for sale.

Bank facilities / Net Bank Cash / Liquidity

At 30 June 2022, Net Cash was at a record high at a half year at £30.7m (31 December 2021: Net Cash £48.5m, 30 June 2021: Net Cash £17.0m), providing flexibility to make further investments to support growth. The Group has a £90 million committed revolving credit facility, with a maturity date of May 2024, and a £30m accordion, to be requested by LSL at any time, subject to bank approval.

The Group generated adjusted cash from operations of £6.1m (H1 2021: £26.9m). After adjusting for tax payment deferrals agreed with HMRC relating to 2020, the cash-flow conversion2 rate in H1 2022 reverted to pre COVID-19 levels at 43%. H1 2021 conversion was 100% due to significantly higher EA revenues with high immediate cash drop-through. The reported cash-flow conversion rate before adjusting for tax deferral payments, was 37% (H1 2021: 68%).

The net decrease in cash and cash equivalents of £17.7m during H1 2022 (H1 2021: £5.6m increase) included further investment in Pivotal Growth (£0.9m), capital expenditure of £2.2m (H1 2021: £3.0m), commencement of the share buy-back programme (£1.8m), the purchase of £5.0m LSL shares for employee share schemes (EBT) and payment of the 2021 Final dividend of £7.7m (H1 2021: £nil dividends paid).

In April 2022, LSL announced the commencement of a share buyback programme of up to £10.0m, with the repurchased shares placed into Treasury. At 30 June 2022, there were 504,273 shares being held in Treasury for a total consideration of £1.8m.

The Financial Services Network business has a regulatory capital requirement associated with its regulated revenues. The regulatory capital requirement was £5.9m at 30 June 2022 (31 December 2021: £4.9m, 30 June 2021: £5.0m), with a surplus of £13.4m (31 December 2021: £14.2m, 30 June 2021: £14.6m).

Contingent consideration liabilities

Contingent consideration liabilities at end of H1 2022 was £2.9m (H1 2021: £5.8m, 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 part settlement and an update to forecasts in relation to RSC and the final settlement of the acquisition of the remaining shares in Group First.

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 our Annual Report and Accounts 2021.

International Financial Reporting Standards (IFRS)

The Interim Condensed Consolidated Group Financial Statements for the period ended 30 June 2022 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 Refer to note 10 of the Financial Statements

Principal Risks and Uncertainties

The principal risks and uncertainties relating to the Group's operations remain consistent with those disclosed on pages 23 to 25 of the Group's Annual Report and Accounts 2021 (which can be accessed on the Group's website: www.lslps.co.uk). Having reconsidered these principal risks and uncertainties which are summarised below, the Board has concluded that the principal risks and uncertainties of the Group remain the same as those included within the Annual Report and Accounts 2021.

Responsibility statement of the Directors in respect of the half-yearly financial report

We confirm that to the best of our knowledge:

· The Interim Condensed Consolidated Group Financial Statements for the period ended 30 June 2022 have been prepared in accordance with UK adopted International Accounting Standard 34;

· The interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related-party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related-party transactions described in the last annual report that could do so.

By order of the Board

David Stewart Adam Castleton

Director, Group Chief Executive Officer Director, Group Chief Financial Officer

2 August 2022 2 August 2022

Interim Group Income Statement

for the six months ended 30 June 2022

Interim Group Statement of Comprehensive Income

for the six months ended 30 June 2022

Interim Group Balance Sheet

as at 30 June 2022

Interim Group Cash Flow Statement

for the six months ended 30 June 2022

Interim Group Statement of changes in equity

Unaudited - for the six months ended 30 June 2022

During the six-month period to 30 June 2022 a total of 431,336 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the

Trust. LSL received £263,000 on exercise of these options.

Interim Group Statement of changes in equity

Unaudited - for the six months ended 30 June 2021

During the six-month period to 30 June 2021 a total of 241,476 share options were exercised relating to LSL's various share option schemes resulting in the shares being sold by the

Trust. LSL received £429,000 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 Interim Condensed Consolidated Group Financial Statements

The Interim Condensed Consolidated Group Financial Statements for the period ended 30 June 2022 were approved by the LSL Board on 2 August 2022. The interim Financial Statements are not the statutory accounts. The financial information for the year ended 31 December 2021 is extracted from the audited statutory accounts for the year ended 31 December 2021, which have been filed with the Registrar of Companies. The auditor's report on those 2021 full year statutory accounts was unqualified and did not contain an emphasis of matter paragraph and did not make a statement under section 498 (2) or (3) of the Companies Act 2006.

1. Basis of preparation

The Interim Condensed Consolidated Group Financial Statements for the period ended 30 June 2022 have been prepared in accordance with UK adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority, and should be read in conjunction with the Group's annual Financial Statements as at 31 December 2021 which are included in LSL's Annual Report and Accounts 2021. The Group's annual Financial Statements for the year ending 31 December 2022 will be prepared in accordance with UK adopted International Accounting Standards.

The Interim Condensed Consolidated Group Financial Statements do not include all the information and disclosures required for a complete set of IFRS Financial Statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual Financial Statements.

Going Concern

The UK Corporate Governance Code requires the Board to assess and report on the prospects of the Group and whether the business is a Going Concern. In considering this requirement, the Directors have taken into account the Group's forecast cash flows, liquidity, borrowing facilities and related covenant requirements and the expected operational activities of the Group.

The Group expects to continue to meet its day to day working capital requirements through a revolving credit facility. The Group's banking facility, a £90 million committed revolving credit facility has a maturity date of May 2024. As shown in Note 12 to these interim condensed consolidated Group Financial Statements, the Group have not currently utilised the facility leaving £90 million of available undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

LSL has continued to run a variety of scenario models throughout H1 to help the ongoing assessment of risks and opportunities. A severe downside scenario has been modelled as part of the Going Concern assessment, which includes the pessimistic assumption that there is a significant reduction in market transaction volumes reducing close to the low point experienced during the Global Financial Crisis. The scenario modelling also excludes further actions that could be taken, such as cost mitigations that could be applied in a severe scenario. Underpinned by LSL's strong balance sheet and diverse business revenue streams, the severe downside financial scenario modelling confirmed that the Group's current liquidity position would enable the Group to operate under this scenario to 31 December 2023 within the terms of its current facilities with no breach of banking covenants and therefore it is appropriate to use the Going Concern basis of preparation for this financial information. 

Having due regard to the scenarios above and after making appropriate enquiries, the Directors have a reasonable expectation that the Group and the Company have adequate resources to remain in operation to 31 December 2023. The Board have therefore continued to adopt the Going Concern basis in preparing the Interim Condensed consolidated Financial Statements.

2. Changes in significant accounting policies

The accounting policies adopted in the preparation of the Interim Condensed Consolidated Group Financial Statements are consistent with those followed in the preparation of the Group's annual Financial Statements for the year ended 31 December 2021.

3. Judgements and estimates

The preparation of financial information in conformity with UK adopted International Accounting Standards and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority requires management to make judgements, estimates and assumptions that affect the application of policies and reporting amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next six months are the same as those as at 31 December 2021. The assumptions are discussed in detail in the Group's Annual Report and Accounts 2021. The assumptions discussed are as follows:

Judgements

Areas of judgement that have the most significant effect on the amounts recognised in the consolidated Financial Statements are:

· Deferred tax

Estimates

The key assumptions affected by future uncertainty that have significant risks of causing material adjustment to the carrying value of assets and liabilities within the next financial year are:

· Professional Indemnity (PI) claims

· Lapse Provision

· Valuation of financial assets

· Impairment of intangible assets

· Contingent consideration

· Income tax

Goodwill

At the period ended 30 June 2022, the Management Team undertook sensitivity analysis to determine the effect of changes in assumptions on the H1 2022 impairment reviews. Marsh & Parsons was impaired by £2.0m at the period end. A reasonable possible change in either latest forecasts or the discount rate applied could lead to further impairment. A reduction in the growth rate of 1.0% would mean a further impairment of £5.0m would be required and a reduction in each of the three years of cash-flows forecast by 7.5% (which represents a reduction of £0.5m in the third year of cash-flow forecasts) would lead to a further impairment of £5.0m. An increase to the discount factor applied from 12.2% to 13.2% would lead to a further impairment of £6.0m. Management do not consider there to be any further impairment indicators for the Marsh & Parsons goodwill at 30 June 2022.

4. Segment analysis of revenue and operating profit

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

· The Financial Services segment arranges mortgages for a number of lenders and arranges pure protection and general insurance policies for a panel of insurance companies. Embrace Financial Services and First2Protect, subsidiaries within the Financial Services Division, make a commercially agreed introducers fee to the Estate Agency Division;

· The Surveying and Valuation Services segment provides a valuations and professional surveying service of residential properties to various lenders and individual customers;

· The Estate Agency segment provides services related to the sale and letting of residential properties. It operates a network of high street branches. As part of this process, the Estate Agency Division also provides marketing and arranges conveyancing services. In addition, it provides repossession and asset management services to a range of lenders. Embrace Financial Services and First2Protect, subsidiaries within the Financial Services Division, make a commercially agreed introducers fee to the Estate Agency Division.

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.

Operating segments

The following tables presents revenue and profit information regarding the Group's operating segments for the six months ended 30 June 2022, for the six months ended 30 June 2022 and for the year ended 31 December 2021.

Unaudited - Six months ended 30 June 2022

Group Underlying Operating Profit is as defined in note 5 to these condensed financial statements.

The joint venture interests of the Group are recorded in the Financial Services and Estate Agency segments.

Unallocated net assets comprise other intangibles £72,000, PPE £2,751,000, cash £30,708,000, other assets £1,574,000, current tax £3,499,000, other taxes £74,000, accruals £(2,420,000), payables £(183,000), IFRS16 liabilities (£323,000) and deferred tax £(1,933,000).

Unaudited - Six months ended 30 June 2021