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Investegate: LSL Property ServPLC

Thu 28 Feb 2013

LSL Property SercPLC: Preliminary Announcement

28 February 2013 LSL Property Services plc ("LSL") PRELIMINARY ANNOUNCEMENT LSL Property Services plc, a leading provider of residential property services incorporating both estate agency and surveying businesses, announces preliminary results for the year ended 31stDecember 2012. % Change Group Revenue ?m Group Underlying Operating Profit(1) ?m Overall operating margin % Like-for-like Group revenue (2) ?m Like-for-like Group Underlying Operating Profit (1,2) ?m Like-for-like operating profit margin % Profit before tax ?m Underlying Profit before tax ?m Basic Earnings per share - pence Adjusted Basic Earnings per share - pence Cash inflow from operations ?m Net Bank Debt ?m Final proposed dividend per share - pence Full year dividend per share - pence (1) Underlying Operating Profit is before exceptional costs, contingent costs, amortisation of intangible assets and share-based payments (2) Excluding Marsh & Parsons which was acquired in November 2011 (3) Refer to note 7 for the calculation Commenting on today's announcement, Roger Matthews, Chairman, said: "LSL has made strong progress in 2012 despite continued challenging market conditions.

The Group reported double digit revenue growth in 2012 and is in a stronger position than a year ago with the Estate Agency Division demonstrating significant organic growth potential. We remain committed to our strategy of driving organic growth in all parts of the business and plan to invest further in Lettings and to focus on growing market share in the Estate Agency division to maintain our excellent progress. We will also continue to invest in our Financial Services division and expand the provision of Surveying services to private buyers.

The Group continues to be extremely cash generative and maintains a strong balance sheet, having reduced the level of net debt by 25% to ?26.6m. We remain confident that pursuing a strategy of investment in organic growth initiatives combined with acquisitions will deliver increased shareholder value into the medium term even without a recovery in market conditions."


LSL is a leading provider of residential property services to its key customer groups. Services to consumers include: residential sales, lettings, surveying, conveyancing and advice on mortgages and non investment insurance products. Services to mortgage lenders include: valuations and panel management services, asset management and property management services. For further information, please visit LSL's website: Chairman's Statement I am pleased to report that the Group made strong progress during 2012 with revenue up by 12%, Group Underlying Operating Profit up by 13% and adjusted Basic Earnings per share up 14%, despite there being no improvement in market transaction levels. The Estate Agency Division had an excellent year as strong like-for-like growth combined with a first full year contribution from Marsh & Parsons more than offset a difficult year in the Surveying Division due to the impact of major contract renewals. Since the exceptional provision for PI claims of ?17.3m was reported in the 2012 half year accounts, the rate and average cost of claims have run in line with expectations.

The business is extremely cash generative and net bank debt at 31st December 2012 has been reduced by 25% to ?26.6m (2011: ?35.7m). Investment to drive organic growth within the Estate Agency Division has continued during the year, particularly in Lettings, and two bolt-on acquisitions have been made in the South East. I am delighted to report an increase in our proposed final dividend of 8% to 6.4 pence per share (2011: 5.9 pence). This increases the total dividend for the year by 9% to 9.5 pence per share (2011: 8.7 pence).

The quality of the Group's earnings has been transformed since the sharp decline in the housing market in 2007. This is evidenced by the extent to which profits are now driven by counter-cyclical and non-cyclical income from lettings and asset management. Increasing income from these activities remains a key strategic priority as well as increasing the Group's exposure to the prime Central London market.

In addition, the business is in a stronger position than a year ago. The Estate Agency division has demonstrated its significant organic growth potential, which we will exploit through further investment. We will continue to strengthen our position in the prime central London market, where it is planned to open a number of new Marsh & Parsons branches during the year.

Financial Results
Group revenue increased by 12% to ?243.8m (2011: ?218.4m) and Group Underlying Operating Profit increased by 13% to ?35.1m (2011: ?31.1m). Group Underlying Operating Margin increased from 14.2% to 14.4%. On a like-for-like basis, excluding Marsh & Parsons, Group revenue increased slightly to ?216.6m (2011: ?215.7m). On the same basis, Group Underlying Operating Profit decreased by 9% to ?27.9m (2011: ?30.5m) due to contract renewals and the impact of a challenging market in the Surveying Division.

The Estate Agency Division delivered a 138% increase in Underlying Operating Profit to ?24.4m (2011: ?10.3m). On a like-for-like basis, excluding Marsh & Parsons, Underlying Operating Profit increased by 78% to ?17.2m (2011: ?9.7m). This performance was delivered despite no significant improvement in transaction levels. House purchase approvals increased by 7% in the first half of the year and then decreased by 1% in the second half, resulting in a full year increase of 3% to 610,000 (2011: 593,000). Repossession volumes fell by 5% to 33,900 in the year (2011: 35,800). The Estate Agency Division benefitted from a strong full year contribution from Marsh & Parsons, excellent growth in Lettings and Financial Services, exchange income fee growth and increased market share in Asset Management.

The Surveying Division revenue was impacted, as expected, by key contract renewals and also by continued decline in market transaction levels, compounded by further reductions in market shares of certain key lender clients. Total mortgage approvals decreased by 6% to 1.16m (2011: 1.23m), including a 12% decrease in remortgages to 340,000 (2011: 387,000). Surveying Division revenue decreased by 19% and Underlying Operating Profit was ?13.9m (2011: ?23.7m) with Underlying Operating Margin of 22.4% (2011: 31.0%).

However, the Surveying Division continues to provide industry leading service levels to clients which together with excellent growth in revenue from the provision of surveying services to private buyers, provide a sound platform for growth.

Since making the additional PI provision of ?17.3m at the 2012 half year, PI costs have tracked in line with expectations for the period since 1st July 2012. The run rates of new claims and costs per claim have been consistent with the assumptions made in setting the 'Incurred But Not Reported' (IBNR) element of the total provision which relates to costs estimated to be received in the future relating to valuations undertaken during the 2004 to 2008 high risk lending period. Setting the correct level of IBNR provision is highly subjective as it is extremely sensitive to small changes in assumptions relating to run rates of new claims and costs per claim.

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