LSL Property Services plc (LON:LSL) has announced its full year results for the year ended 31 December 2021.
KEY HIGHLIGHTS
Record Group financial performance and historically strong balance sheet enabling further investment to deliver the Group’s ambitious growth strategy
· Group Underlying Operating Profit1 increased by 40% to £49.3m (2020: £35.2m)
· Record Underlying Operating Profit stated after expensing c.£3m in 2021 to develop Financial Services technology and Direct to Consumer (“D2C”) business
· Profit before tax up 234% to £69.9m (2020: £20.9m)
· Net Cash of £48.5m at 31 December 2021 (2020: Net Debt: £1.6m)
Strong profit growth in each of the Group’s core businesses
· Financial Services Division: Underlying Operating Profit of the core Financial Services Network business increased by 34% to £14.4m (20202: £10.7m)
· Financial adviser numbers increased by a record 273 year-on-year to total 2,858 at 31 December 2021
· Gross revenue per advisor3 increased by 7%
· LSL’s share of the total UK purchase and remortgage market increased to almost 10%
· Surveying & Valuation Division Underlying Operating Profit up 46% to £23.6m (2020: £16.2m), with Operating margin improving significantly to c.25% (20202: 21%), benefiting from operational efficiency and improved income per job
· Estate Agency Division Underlying Operating Profit increased by 53% to £18.4m (2020: £12.1m), reflecting increasing residential market share across its core catchment areas and overall growth in the value of housing transactions
Substantial progress in executing our Financial Services led growth strategy
· Announced five-year agreement to provide mortgage and protection advice services to franchisees of The Property Franchise Group
· Established £200m Pivotal Growth joint venture to “buy and build” a leading national mortgage broker, with two acquisitions made to date
· Completed acquisitions to strengthen digital capabilities in Financial Services
· Restructured D2C Financial Services business, to take advantage of increased opportunities in Estate Agency and New Build sectors
· Sold investments in two non-core businesses for a combined £41.3m, simplifying the Group and providing funds to make further investment to deliver the Group’s ambitious Financial Services led growth strategy
We expect 2022 financial performance to benefit from continued growth in Financial Services in a more challenging housing market, demonstrating reduced cyclicality of earnings
· Latest market estimates suggest the mortgage market will be around 11% lower than 2021, and housing transactions in 2022 around 19% lower than 2021
· Mortgage and housing market activity levels are expected to be at similar levels as 2019
· The Group’s strategic focus on FS and the significant progress made in Surveying & Valuation, has reduced LSL’s exposure to housing market volatility with the result that we expect a more limited impact on the Group’s results in 2022 than would historically have been the case
· Overall front-end sales activity across the Group in the year to date is in line with internal expectations
· The financial performance across Financial Services and Surveying & Valuation in the first two months of 2022 is in line with the Board’s expectations
· The Board is encouraged by front end sales activity in Estate Agency. However, residential pipeline conversion remains slow, impacted by continuing industry-wide capacity issues in conveyancing and this has delayed Estate Agency profits. The Group retained a strong residential pipeline at 28 February 2022, which had increased by 10% compared to 31 December 2021, with fall-throughs remaining at normal levels
· In 2022 the Board expects mortgage and housing transactions to revert to pre-COVID levels with geopolitical uncertainties adding to existing inflationary cost pressures. The Board has also considered the impact of a market-wide continuation of slower residential pipeline conversion. Nevertheless, at this early stage in the year, the Board’s current expectation is that the Group will deliver a full year Underlying Operating Profit in line with its prior expectations, as the business is expected to continue to benefit from the execution of its financial services led growth strategy and strong performance of its Surveying & Valuation business
· The split of H1:H2 profit in 2022 is expected to revert to a more typical profile with a skew to H2, after record housing transactions in H1 2021
· The Financial Services Division remains on track to be the most profitable Division by 2023, with further organic growth in network financial advisers expected, supported by additional advisers from Pivotal Growth firms and to service distribution agreements
Notes:
1. Group Underlying Operating Profit is before exceptional items, contingent consideration, amortisation of intangible assets and share-based payments (see note 5 of the financial statements). In 2020 COVID-19 costs of £6.4m were recognised in Group Underlying Operating Profit. Stated before COVID-19 costs, Group Underlying Operating Profit in 2020 was £41.5m
2. Divisional Underlying Operating Profit and Divisional Underlying Operating margin comparatives for 2020 are stated on the same basis as Group
3. Gross revenue per adviser is calculated as FS Network gross revenue (excluding the TMA mortgage club) per average adviser
FINANCIAL RESULTS
| 2021 | 2020 | Var | |
| Group Revenue (£m) | 326.8 | 266.7 | 23% |
| Group Underlying Operating Profit1 (£m)(post COVID-19 costs) | 49.3 | 35.2 | 40% |
| Group Underlying Operating margin(post COVID-19 costs) | 15% | 13% | +190bps |
| Exceptional Gains (£m) | 31.1 | 0.7 | nm |
| Exceptional Costs (£m) | (2.0) | (7.1) | 71% |
| Group operating profit (£m) | 72.6 | 23.9 | 205% |
| Profit before tax (£m) | 69.9 | 20.9 | 234% |
| Basic Earnings per Share2 (pence) | 59.6 | 15.9 | 275% |
| Adjusted Basic Earnings per Share2 (pence) | 37.7 | 31.9 | 18% |
| Net Cash / (Net Bank Debt)3 (£m) | 48.5 | (1.6) | nm |
| Final proposed dividend (pence) | 7.4 | nil | nm |
| Full year dividend (pence) | 11.4 | nil | nm |
Notes:
1 Group Underlying Operating Profit is before exceptional items, contingent consideration, amortisation of intangible assets and share-based payments (as set out in note 5 of the Financial Statements).
2 Refer to note 6 of the Financial Statements for the calculation
3 Refer to note 11 to the Financial Statements for the calculation
nm Not meaningful
Commenting on today’s announcement, David Stewart, LSL Property Services Chief Executive said:
“I am pleased to report that LSL’s core businesses are performing well and that our Financial Services led growth strategy has made good progress.
“We expect mortgage and housing transactions to revert to pre-COVID levels with geopolitical uncertainties adding to existing inflationary pressures. These will affect our Estate Division in particular, and as always, we will be agile and respond to market conditions as required.
“However, the benefits of both our growth strategy in Financial Services and the significant progress made in Surveying & Valuation, mean that we expect the housing market cycle to have a more limited impact on the Group’s results. We look forward to reporting further growth in Financial Services, alongside continued investment in building our D2C businesses and I remain excited about the Group’s longer-term opportunities.”
