LSL Property Services says that its decision to move to a franchise estate agency model is working ahead of plan.

The Newcastle-based property group announced in May last year that its entire owned estate agency network of 183 branches would become franchises.

In a trading update yesterday, the firm told investors it was confident of delivering profits “materially ahead” of 2023.

Revenues have fallen sharply as a consequence of last year’s change in business strategy, falling from £217m to £144m as LSL.

The company, which is hoping that the move will lead to higher profit margins, estimates that like-for-like revenue is down 10% after adjusting for the disposals.

The group said the estate agency division, which includes Reeds Rains and Your Move brands, was operating ahead of plan for revenue and profits, providing a second half operating margin of about 30%. Franchising of the network was hope to eliminate most of a £125m cost base.

Statement: Here is the pre-close trading update for the 12-month period ending 31 December 2023 issued by LSL yesterday: 

Highlights

Following a positive final quarter, full year results for 2023 are in line with the Board’s expectations, and at this early stage we remain comfortable with delivering profits in 2024 materially ahead of 2023.

We also report the extension of our Surveying and Valuation Division’s contract with Lloyds Banking Group plc and confirm that the acquisition of TenetLime announced in August is expected to complete imminently.

Trading

Group Underlying Operating Profit in the second half of the year showed a material improvement on H1.

As expected, subdued activity levels across the valuations market continued to impact our Surveying Division. However, there were some signs of improvement in the final months of the year which will support our expectation of improved Surveying earnings in 2024.

Performance of LSL’s Financial Services Network business remained resilient with profitability slightly ahead of plan. Our overall share of the UK Purchase and Remortgage market increased to 10.7% (2022: 10.5%).

Following the conversion of our Estate Agency network to a wholly franchise model during H1, the Division continues to perform ahead of plan for both revenue and profits, with second half operating margin of c.30%.

Surveying & Valuation Division

We are pleased to confirm that in January we extended our contract to supply surveying and valuation services to Lloyds Banking Group, underpinning our leading market position. The contract was originally awarded in May 2018 and has been extended to September 2028.

Financial Services Division

On 21 August 2023 we announced the acquisition of the TenetLime mortgage network subject to FCA approval. This approval has been received with completion now imminent. Plans for the integration are in place and we are on track to deliver the planned business benefits.

Pivotal Growth, our joint venture with Pollen Street Capital has made two further acquisitions since our last update. 

Financial performance

Group Revenue from continuing operations⁴ was £144m (2022: £217m). After adjusting for disposals, like-for-like revenue was 10% below prior year in a housing market 19% lower and in a smaller lending market.

Strong balance sheet with Net Cash of £34.9m at 31 December 2023 (31 December 2022: £40.1m), providing flexibility for future deployment of capital.

Outlook

The Group’s trading in January was in line with management expectations and ahead of 2023. At this early stage of the year, we remain on track to deliver a material increase in profit for 2024 compared to 2023 due mainly to the benefits of improved performance in Surveying, as well as a full year of operating the franchising model. A further update on current trading and outlook will be shared with the release of our preliminary results.