Lsl Prop Regulatory News (LSL)

11 December 2020

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

TRADING UPDATE

LSL reports strong trading in H2 with full year 2020 Group Underlying Operating Profit expected to be marginally ahead of 2019

LSL, a leading provider of residential property services incorporating mortgage intermediation and other financial services, estate agency, and surveying and valuation businesses, issues a trading update for the ten-month period up to 31 October 2020.

Highlights

· Trading was strong in the period from July to October with all three Divisions reporting encouraging front-end sales metrics

· In the Financial Services Division, total financial advisers at 31 October was 2,528, an increase of 8% year on year, with a strong pipeline of new advisors

· The value of LSL's mortgage completions in the ten months to 31 October 2020, was £25.8bn, representing around 9% market share(1)

· LSL's PRIMIS Mortgage Network awarded Best Network, and e.surv awarded Best Surveyor / Valuer at the October 2020 annual Mortgage Strategy Awards and PRIMIS awarded Mortgage Network of the Year at the December 2020 annual Mortgage Introducer Awards

· Residential sales exchange pipeline at 31 October was the highest for the Group in over ten years(2) and was more than 50% above the same date in 2019

· Surveying revenue recovered quickly following easing of lockdown restrictions in May 2020, benefiting from strong lender pipelines and increased new business activity

· The Government has reiterated its intention to enable the housing market to operate as normally as possible, and the Group's estate agency, surveying and financial services operations remain open and operating in line with guidance and with the safety of staff and customers as our highest priority

· The Board expects to deliver a full year 2020 Group Underlying Operating Profit(3) marginally ahead of 2019. This is stated before the recognition of Covid-19 related net costs as set out in the 2020 Interims

· Net Banking Debt remains modest and at £14.1m has reduced significantly from the same date in 2019. (31 October 2019: £54.8m). Adjusting for Covid-19 related payment deferrals, mainly in relation to tax payments due in agreement with HMRC, the underlying Net Banking Debt position at 31 October 2020 was approximately £31m

Financial performance

Group revenues for the ten months ended 31 October 2020 decreased by 18% to £214.3m (2019: £262.8m), being materially impacted by Covid-19, as well as the reshaping of the Your Move and Reeds Rains networks in February 2019, and the tenant fee ban introduced in June 2019.

Revenue has been improving since the end of the first lockdown in May. Group revenue was down 14% year on year in June, reducing to only 5% down year on year for the month of October. Transactions are taking longer to move through to completion, impacting the Financial Services and Estate Agency Divisions, which is reflected in significant increases in sales pipelines and revenue yet to be recognised.

This steady increase in revenues over the period can be seen in the table below:

Financial Services

Mortgage and protection insurance business volumes have continued to grow strongly over the summer months. In the four months ended October 2020, PRIMIS mortgage applications were up 14% and protection applications up 15% compared to the same period in 2019. This activity will help support future revenue as mortgages complete.

In the four months to October 2020, we registered around 100,000 potential new mortgage and insurance customers across the PRIMIS network and increased the advisor numbers operating within the PRIMIS network by more than 100, taking the total advisor base to over 2,500. This represents growth of 8% year on year, with a pipeline of a further 250 advisors currently undergoing the application process.

Financial Services revenue excluding Estate Agency in the ten months to 31 October 2020 was down 14%, due to a number of factors, including the impact of Covid-19 on trading, and a mix effect of increased penetration of product transfers, particularly during the lockdown period when remortgages and product transfers represented an increased proportion of written business. Increased sales pipelines and revenue yet to be recognised will flow through in the next few months.

Estate Agency

The very significant increase in house sales agreed following the end of the May lockdown has given rise to significant pressures in parts of the housing chain, notably a market-wide shortage in conveyancing capacity. This has meant that the average time taken to exchange and complete on agreed sales has increased in the market generally.

This has resulted in significant growth in the residential exchange pipeline, which at 31 October 2020 stood at circa £24m (2019: £16m). This is the highest level in over ten years in Your Move and Reeds Rains keystone branches, the highest since LSL has owned the LSLi brands and the highest in over four years in Marsh & Parsons.

Surveying

With high levels of residential sales and mortgage activity, Surveying Division revenues, being more front-loaded than other parts of the Group, recovered faster and in the four months to 31 October 2020 were marginally ahead of prior year.

Operating profit margin has benefited from the back-office cost savings made in Q4 2019 and 2020.

LSL continues to invest in the training and development of new surveyors, adding 41 successful new qualifying Assoc RICS and SAVA candidates in the year to date.

Current trading

Sales activity in November continued to reflect a strong market, with all of LSL's key front-end sales metrics ahead of the prior year, and with the sales exchange pipeline at 30 November 2020 maintained at the same level as at 31 October 2020 and 60% ahead of last year. There is currently no evidence of a material increase in residential fall-through trends, although the elongation in the time taken to complete may put pressure on this across the market generally. We continue to monitor this closely.

Revenue was up year on year in November in each of the Divisions, with Group Revenue around 6% above prior year, demonstrating the continuation of the trend of improving revenue performance since the ending of the first lockdown in May 2020.

Balance Sheet Update

The Group has a strong underlying business, with diversified revenue streams, which have demonstrated their resilience through highly stressed economic conditions. The Board continues to monitor cash carefully and carry out regular stress testing.

The Group has a revolving credit facility of £100m committed to May 2022. Careful cash management has resulted in modest Net Banking Debt at 31 October 2020 of £14.1m (2019: £54.8m). Adjusting for Covid-19 related payment deferrals, mainly in relation to tax payments due as agreed with HMRC, the underlying Net Banking Debt position at 31 October 2020 was approximately £31m. We anticipate a net cash inflow between 31 October and 31 December.

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

"I am pleased to report that the Group has taken advantage of the strong rebound in activity levels following the end of the first lockdown, and as a result we now expect to be able to report 2020 Group Underlying Operating Profit marginally ahead of 2019.

We look forward to reporting on our full year results in the early part of 2021, when we will also set out details of the progress we have made on implementing our strategy. I would like once again to place on record my thanks to all our staff for their tremendous support they have given LSL this year."

Notes to trading update:

1. Market share calculated excluding Product Transfers

2. Pipelines for Your Move and Reeds Rains keystone branches, LSLi branches and March & Parsons branches

3. Group Underlying Operating Profit is before exceptional costs, Covid-19 related net costs, contingent consideration, amortisation of intangible assets, share-based payments and includes amounts receivable pursuant to the Coronavirus Job Retention Scheme and utilised to pay employee salaries for those placed on furlough

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Notes on LSL

LSL is a leading provider of residential property services in three key markets: financial services, estate agency and surveying and valuation services. Services to consumers and businesses include: mortgage and non-investment insurance brokerage and intermediary network services, residential sales, lettings, land and new homes, surveying, conveyancing support, surveying, and mortgage and non-investment insurance brokerage and intermediary network services. Services to mortgage lenders include: valuations and panel management services, and asset management and property management services. For further information, please visit LSL's website: lslps.co.uk

Forward Looking Statement

This announcement contains certain statements that are forward-looking statements. They appear in a number of places throughout this update and include statements regarding LSL's intentions, beliefs or current expectations and those of its officers, directors and employees concerning, amongst other things, LSL's results of operations, financial condition, liquidity, prospects, growth, strategies and the business it operates. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this update and, unless otherwise required by applicable law, LSL undertakes no obligation to update or revise these forward-looking statements. Nothing in this update should be construed as a profit forecast. LSL and its Directors accept no liability to third parties in respect of this update save as would arise under English law.

Any forward-looking statements in this update speak only at the date of this announcement and LSL undertakes no obligation to update publicly or review any forward-looking statement to reflect new information or events, circumstances or developments after the date of this update.