TIDMLSL
RNS Number : 0389P
LSL Property Services PLC
05 June 2020
For Immediate Release
5 June 2020
LSL Property Services plc ("LSL" or "The Group")
TRADING UPDATE AND COVID-19 UPDATE
LSL reports strong first quarter trading and resilient
performance in unprecedented market conditions with encouraging
initial activity levels following easing of lockdown
restrictions
LSL Property Services plc, a leading provider of residential
property services incorporating financial services, estate agency,
and surveying and valuation businesses, issues a trading update for
Q1 to 31 March 2020 and also for April 2020 and a COVID-19 update
following the easing of the lockdown.
HIGHLIGHTS
Strong financial performance in Q1 ended 31 March 2020
-- Group Underlying Operating Profit(1) up by 62% to GBP3.4m compared with Q1 2019
-- Financial Services, Estate Agency and Surveying Divisions all
report an increase in operating results over prior year
-- Net Bank Debt at 31 March 2020 of GBP42.1m, resulting in
modest gearing(2) at 0.97x Adjusted EBITDA
Decisive action taken in response to COVID-19 outbreak
-- Focus on maintenance of income streams, including lettings,
mortgage brokerage, insurance and remote surveying valuations
-- All Board members voluntarily reduced salaries and fees by one-third
-- Reduction in payroll costs to reflect lower levels of
activity, with the UK Government Coronavirus Job Retention Scheme
deployed in respect of 73% of staff
Resilient financial performance during lockdown, generating an
operating profit in April 2020
-- The Group generated an Underlying Operating Profit in April 2020 of GBP1.6m (2019: GBP2.9m)
-- April Group revenue reduced by 56% compared to prior year,
reflecting the market-wide impact of COVID-19 on the Group's
activities, and in particular Residential Sales and Surveying
physical valuations
Well positioned to meet highly stressed conditions
-- Revolving credit facility of GBP100m, committed to May 2022
-- Stress testing carried out, assuming significant market
stress throughout 2020, the results of which indicate that LSL will
retain sufficient liquidity throughout
-- Group Net Banking Debt at 30 April 2020 reduced to GBP28.4m,
representing gearing of 0.68x 12 month rolling Adjusted EBITDA
against a covenant of 3.25 times
-- Measures remain in place to conserve cash
Quick response to easing of Government restrictions, focusing on
health and wellbeing of staff and customers
-- Contingency plans already in place allowed the prompt
reopening of Estate Agency branches and resumption of physical
viewings and valuations in a safe environment
-- Effective implementation of non-physical (remote) Surveying valuations
-- At 31 May 2020, 207 Estate Agency branches out of a total of
231 branches opened and available for meetings via pre booked
appointment
-- 41% of furloughed staff returned to work
-- Early indication of sales activity have been positive
-- Significant numbers of physical valuations undertaken, with
high demand in June to clear lender pipelines and in respect of new
instructions
-- Market conditions continue to be monitored closely
FURTHER DETAIL
Financial performance - Q1 2020
Group
-- Group Underlying Operating Profit increased 62% to GBP3.4m (2019: GBP2.1m)
-- Underlying Operating Profit increased in each of LSL's Operating Divisions versus 2019
-- Group revenue decreased by 6% on a like-for-like basis,
including the impact of the introduction of the Tenant Fee Ban in
June 2019 and the reduction in trading in March 2020 both in the
lead up to and, more acutely, following the announcement of the
lockdown on 23 March 2020
-- Reported Group revenues fell 10% to GBP69.6m (2019:
GBP77.1m), including the impact of 164 estate agency branches
closed following the reshaping of the Your Move and Reeds Rains
branch networks announced on 5 February 2019 and the factors noted
above
-- Net Bank Debt at 31 March 2020 of GBP42.1m, resulting in modest gearing at 0.97x EBITDA
Financial Services Division
-- Financial Services Division profitability continued to grow
strongly, with Underlying Operating Profit up 27%
-- Total Financial Services Division revenue decreased by 6%,
including the impact of the reshaping of the Your Move and Reeds
Rains branch networks during Q1 2019
-- Mortgage completions increased year-on-year by 8% to GBP7.8bn, representing 9% of market
-- Total appointed representative firms at 31 March 2020 of 864 (31 March 2019: 844)
-- The number of financial advisers increased by 2% to 2,342
Estate Agency Division
-- Material improvement in financial performance compared to
prior year, benefiting from the reshaping of the Your Move and
Reeds Rains branch networks announced on 5 February 2019, and a
strong year-on-year performance improvement in Marsh &
Parsons
-- Lead sales indicators throughout the Estate Agency branch
network were positive, with strong year-on-year growth in net sales
in the period to the lockdown on 23 March 2020
-- The Estate Agency sales pipeline at 31 March 2020 of GBP17.3m, was GBP2.7m above prior year
-- Total like-for-like Residential Sales Exchange Income increased by 1%
-- Total like-for-like Lettings income decreased by 9%,
including the impact of the Tenant Fee Ban introduced in June
2019
-- Marsh & Parsons performed strongly, with total revenue up
5%, and Residential Sales Exchange Income up 27%
Surveying Division
-- Underlying Operating Profit increased 3%, with performance
benefiting from back office cost efficiencies made during the
quarter
-- Revenue was broadly in line with prior year
-- In the period up until lockdown, 2020 revenue was 7% higher
than the same period in the prior year
-- Continued investment in technology to enhance our product offering
LSL COVID-19 Response
The Board reacted quickly to the emergence of the COVID-19
virus, and the announcement of the national lockdown on 23 March
2020. In formulating its measures, the Board's priorities were
to:
-- Safeguard the health and well-being of staff and customers
-- Optimise short-term financial performance
-- Safeguard cash and manage liquidity in a sustainable way in line with the banking covenants
-- Understand the impact of extreme scenarios and put in place
plans to safeguard the Group's financial health under plausible
worst-case conditions
-- Retain the capability required to take early advantage of any improvement
The resulting measures taken include:
-- Implementation of the annual pay review immediately suspended
for all directors and staff(3)
-- All Board and Executive Committee members agreed a voluntary
reduction of up to one third in salary and fees from 1 April 2020.
This will be kept under review by LSL's Remuneration Committee
-- In response to the drop in transaction volumes, at 30 April
2020, 73% of Group employees were on furlough, as part of the UK
Government's Coronavirus Job Retention Scheme
-- All discretionary expenditure halted, and improved terms
negotiated with a number of key suppliers
-- Residential Sales exchange income and Lettings income from
new instructions for essential pipeline transactions secured in
line with Government guidance
-- Implemented non-physical (remote) valuations with the
majority of lender clients, allowing a proportion of revenue to be
secured
-- Focus on meeting consumer demand for remortgage and
protection products in Financial Services businesses
Impact of lockdown on business volumes
As anticipated, the impact of the lockdown on housing market
transactions was significant. Average metrics for LSL in the twelve
weeks prior to the lockdown announced on 23 March 2020, compared to
the average for the seven-week lockdown period up to 11 May 2020
were as follows:
-- In the Estate Agency branch networks, Residential Sales
Exchange Income per week reduced by 63% whilst new lettings and
renewals reduced by 24%
-- Mortgage applications (excluding Estate Agency network)
reduced by 25%, with continuing demand for advice for remortgages
and product transfers
-- Average Protection completions (excluding Estate Agency
network) were highly resilient remaining at the same level in the
period after lockdown
-- General Insurance renewals (excluding Estate Agency network)
were also highly resilient, being in line with the period before
lockdown
-- Average weekly Surveying valuations reduced by 80%, with all
remaining valuations conducted on a remote basis, in line with
lockdown requirements
Financial performance in April 2020
Notwithstanding the full national lockdown that commenced on 23
March 2020 and continued throughout the whole of April and into
May, LSL delivered a robust financial performance:
-- The Group generated an Underlying Operating Profit in April 2020 of GBP1.6m (2019: GBP2.9m)
-- In line with Group accounting policy, GBP1.2m of costs have
been recognised and classed as exceptional due to the unprecedented
situation related to the COVID-19 situation
-- Group revenue reduced by 56% compared to prior year
-- Estate Agency and Surveying Divisions were more affected than
Financial Services, which benefited from remortgage and protection
activities as well as the resilience of our General Insurance
business predominantly driven by renewals
-- Financial Services revenue, excluding Estate Agency, reduced by only 18% compared to 2019, notwithstanding the significant market wide reduction in house purchase mortgages
-- Financial Services contributed increased operating profit of
GBP0.9m in April (2019: GBP0.7m) benefitting in particular from the
arrangement of remortgage and protection products
Group liquidity and banking covenants
The Board has a low risk appetite for financial gearing,
reflected in relatively modest levels of bank debt. The Group has a
Revolving Credit Facility in place of GBP100m, which is committed
to May 2022. As at 30 April 2020, the Group had Net Banking Debt of
GBP28.4m, and gearing of 0.68x twelve-month rolling Group Adjusted
EBITDA against a banking covenant of 3.25 times. This represents a
significant reduction from Net Banking Debt at 31 December 2019 of
GBP41.9m, an improvement brought about by a number of steps
including:
-- Suspension of the final dividend for the year ended 31 December 2019
-- Deferral of all non-critical capital expenditure
-- Deferral of tax payments according to HMRC guidance
-- Negotiation with key suppliers to improve terms and reduce cash outflow
-- Use of the UK Government's Coronavirus Job Retention Scheme
-- Acquisition activity put on hold
Cash flow continues to be monitored closely. As the COVID-19
situation has developed, the Board has considered the impact of a
number of stress scenarios on its financial performance and
liquidity position, and it continues to update these scenarios
regularly in light of the best information available.
The future impact of the virus remains highly uncertain and this
is reflected in the information reviewed by the Board, and in the
steps management continues to take. Amongst the scenarios
considered, is one which assumes the continuation of an effective
lockdown position throughout the whole of 2020. The Board believes
that, with appropriate mitigating actions, the Group has sufficient
liquidity to cover each of the stress tests performed.
Easing of lockdown restrictions
On 12 May 2020, it was announced that in England a number of
residential housing market activities could resume from 13 May
2020. These included the opening and operation of estate agency
offices, as well as various types of work undertaken in people's
homes such as viewings, physical valuations, removals for home
moves and other essential parts of the residential sales and
letting process.
LSL had already put in place detailed contingency plans in
preparation for any future relaxation of the lockdown rules. As a
result of this preparation, we have been able to recommence
business quickly and in a way that safeguards the health and
well-being of staff and customers as far as possible. Estate Agency
branches have been reconfigured to allow essential social
distancing to take place, and equipped with precautionary elements,
such as perspex screens and additional cleaning items, with all
meetings scheduled by appointment and limited to 15 minutes.
The Group has conducted rigorous risk assessments of its
premises, and put in place detailed training and guides to ensure
they are conducted in relation to all of the re-opened premises. We
hope that the robust measures will provide reassurance to staff and
customers alike.
The response from staff and customers has been extremely
encouraging, following the easing of the lockdown restrictions:
Financial Services Division
-- The daily run rate of PRIMIS purchase related mortgage
applications in the three weeks since lockdown restrictions has
increased by 44% compared to the seven weeks of lockdown
-- Mortgage search activity and customer enquiry activity
increased following the easing of the lockdown restrictions
-- Following a shift to refinance mortgage applications in April
(86% re-mortgage / 14% purchase), in the last week of May as
purchase activity increased, the mix shifted back towards purchase
(67% refinance / 33% purchase)
-- Mortgage completions notified by mortgage lenders in the
first three weeks since restrictions have increased strongly as
refinance mortgages arranged during the lockdown period and house
purchases delayed by lockdown move through to completion
-- Strong pipeline of potential advisers and Appointed
Representative firms seeking to join the network
Estate Agency Division
-- 207 LSL Estate Agency branches now open in England and
Northern Ireland of LSL's owned and operated network totaling 231
branches. Branches in Scotland and Wales will open as appropriate
and in line with Government advice
-- 50% of employees previously furloughed in Estate Agency branches have now returned to work
-- In the three weeks following easing of lockdown restrictions,
average weekly residential sales exchange income has so far
recovered to 34% below the pre lockdown period, compared to the 63%
reduction experienced during lockdown
-- Physical property valuations recommenced with higher than
expected levels of buyer activity with over two thousand valuations
carried out in the first three weeks since restrictions eased and a
further one thousand bookings being taken
-- Tenant registration levels have returned to pre lockdown levels
-- Video tours have been received positively by customers as a
prelude to physical viewings. In Marsh & Parsons, for example,
in the last week of May, 85% of first viewings for tenants were via
video
Surveying Division
-- Physical surveying valuations recommenced on 18 May 2020,
starting gradually and increasing as clarification was issued by
RICs on physical valuation guidelines
-- Daily average volume of valuations post-lockdown have
returned to 60% of pre-lockdown levels
-- 60% of employees previously furloughed have returned to work
with further returns planned during June to increase capacity to
service a growing lender demand and an increased pipeline of
physical valuations
We will continue to monitor activity levels on a daily basis to
ensure that LSL has the appropriate level of resources to optimise
the Group's financial position. The Board welcomes the extension of
UK Government's Coronavirus Job Retention Scheme to the end of
October 2020, and the flexibility it provides will help to manage
resources effectively, and safeguard as many jobs as possible.
AGM
LSL normally holds its AGM at the end of April, however due to
the outbreak of COVID-19, the AGM arrangements have been under
review. LSL has on 4 June 2020 published its Notice of Meeting
advising Shareholders that the AGM will now be held on the 30 June
2020. The AGM will take place at LSL's office, Gateway 2, Holgate
Park Drive, York YO26 4GB. Details relating to the AGM arrangements
which factor in the Government's guidance are available on the LSL
website and are included in the AGM Notice, which is also available
to view at www.lslps.co.uk. The arrangements are being kept under
review and any amendments will be notified via the LSL website.
Outlook
The future course of the COVID-19 virus and its impact on the
economy and the markets in which the Group operates, remains highly
uncertain. In these conditions, it is not possible to provide an
accurate assessment of trading prospects, and the Board therefore
remains unable to provide financial guidance for the year ending 31
December 2020 and beyond. Guidance will be resumed when market
conditions become clearer.
LSL has implemented a number of measures to reduce costs
significantly, optimise the balance sheet position and afford the
flexibility to respond to changing market conditions. These steps
give the Board confidence that the Group can cope with severe
stress conditions continuing throughout 2020, and management will
continue to monitor the environment closely and continuously to
preserve this position.
The steps taken in recent years to rationalise the Estate Agency
branch networks and to build strong income streams in a number of
sectors, notably Financial Services, has helped position the Group
to meet the exceptional challenges resulting from the COVID-19
outbreak. The Board looks forward to a return to a strategy focused
on growth in each of its principal activities once the current
crisis recedes.
Commenting on today's announcement, David Stewart, Group Chief
Executive Officer, said:
"LSL's performance during 2020 is testament to the underlying
strength of the Group. Over a number of years, the Board has
implemented a simple but consistent strategy to secure the position
of our traditional agency businesses whilst building steadily our
presence in complementary sectors. The value of this carefully
controlled diversification is highlighted by the performance of our
Financial Services Division, which contributed significantly to our
robust performance.
In addition, our ability to respond rapidly and in detail to
changing market conditions has meant that our response to the
outbreak was decisive and effective.
This could not have been achieved without a tremendous effort
from colleagues working in all parts of the Group. Their
commitment, flexibility and positivity highlights how they remain
our greatest asset, and I would like to thank them for their
support. Their health and well-being, and that of our customers,
will remain my highest priority.
Looking ahead, it is impossible to plot the future course of the
virus or its impact on the economy or the housing market. We remain
alert to the risk of more disruption, and will again take decisive
action should it occur. Nevertheless, our performance so far in
2020 also illustrates the underlying strength of our business, and
the potential it has. I continue to believe LSL has an exciting
long term future."
For further information, please contact:
David Stewart, Group Chief
Executive Officer
Adam Castleton, Group Chief
Financial Officer
LSL Property Services plc 0207 382 0360
Helen Tarbet 07872 604453
Simon Compton 07979 497324
Buchanan 0207 466 5000
Notes:
1. Group Underlying Operating Profit is before exceptional
costs, contingent consideration, amortisation of intangible assets
and share-based payments
2. Gearing is defined as Net Bank Debt divided by Group Adjusted
EBITDA (excluding the impact of IFRS 16)
3. This is an amendment to the information included in the
Directors' Remuneration Report which will be presented to
Shareholders for approval at the forthcoming AGM
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 include: residential sales,
lettings, land and new homes, surveying, conveyancing support, 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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