Interim Management Statement

RNS Number : 2947S

LSL Property Services

06 November 2013

 



For Immediate Release

6 November 2013

LSL Property Services plc

("LSL" or "the Group")

Interim Management Statement

LSL, a leading provider of residential property services, incorporating Estate Agency and Surveying businesses, issues this Interim Management Statement for the period from 1 July 2013 to 5 November 2013.

The number of Total Mortgage Approvals⁽¹⁾ for the nine months to 30 September 2013 was 8.2% higher than for the same period in 2012. House Purchase Approvals⁽¹⁾ were 16.8% higher on the same comparative basis. Transaction volumes have now grown significantly for the six months since April 2013. Market data is not yet available for October.

The Group has traded in line with the Board's expectations during the period. The percentage change in turnover for the four months ended 31 October 2013 compared with the same period in 2012 is set out below. In addition, the percentage change in turnover for the ten months ended 31 October 2013 compared with the same period in 2012 is set out both in total and on an underlying⁽²⁾ basis:

	Total	Underlying	Total
	4 mths to 31 Oct	10 mths to 31 Oct	10 mths to 31 Oct
Group	13%	7%	4%
Estate Agency	13%	8%	8%
Surveying	12%	4%	-7%

LSL activity levels have increased consistently since April and trading momentum is now building on a month by month basis. Investment has continued during the year to build capacity in the improving estate agency and surveying markets.

Estate Agency & Related Services:

The Estate Agency division has traded strongly during the period July to October 2013:

-     Total income up 13% year on year

-     Exchange income increased by 15% year on year

-     Lettings income growth of 6% year on year

-     Financial Services income up 25% year on year

-     Pipeline volumes up 19% year on year at 31 October and pipeline value up by 23% year on year for the same period

-     Headcount increase of 179 in Agency branches since 1 July 2013

-     Continued positive progress at Marsh & Parsons with three new branch openings in 2013 and overall trading in line with expectations

-     Asset management has outperformed a difficult market where repossession volumes⁽³⁾ were down 13.3% year on year for the period January to June. Market data is not yet available for the period July - October 2013

Surveying & Valuation Services:

There has been a significant improvement in the performance of the Surveying division in the period July to October 2013:

-     Revenue increased by 12% year on year reflecting improved market conditions

-     Substantial investment in recruitment to build capacity for clients

Professional Indemnity (PI) Costs:

In June 2012 an additional PI provision of £17.3m (£13.1m after tax) was made due to the deterioration in claims experience relating to the 2004 to 2008 high risk lending period. High levels of claims relating to this period have continued to be an industry wide problem. The additional provision included an increase in the 'Incurred But Not Reported' (IBNR) provision required for notifications and claims estimated to be received in the future for the 2004 to 2008 period. The primary statutory limitation for this period ends during 2014. It was noted in June 2012 that this was the Board's best estimate of future claims and the conclusions on the appropriate level of IBNR provision were sensitive to small changes in assumptions and are therefore highly subjective.

In June 2012, it was assumed that the run rate of new claims would reduce significantly from July 2013 following the change in legislation governing civil litigation taking effect in April 2013. This reduction has not yet materialised and the run rate of new cases has remained at the level established in June 2012. In addition, the cost per claim has increased and in most recent months has been running higher than assumed in July 2012. The increasing trend in cost per claim has been driven by a relatively small number of high value claims and by increases in legal costs.

Therefore it is currently expected that an additional exceptional charge of c£12.0m (c£9.2m after tax) will be made in the financial accounts for the year ending 31^st December 2013 in order to increase the PI provision. This additional provision represents our current best estimate of likely claims costs but the process of resolving open claims and estimating future claims is on-going. A number of risks and uncertainties remain, in particular the actual monthly run rate of new claims, the date at which the high rate of claims will significantly reduce, and the average cost per case both for existing open claims and for claims yet to be received. The cost of these factors could differ materially from the Board's estimates, which could result in a further provision being required.

Outlook:

Market transaction levels have now shown year on year growth for six consecutive months. Total mortgage volumes in the third quarter of 2013 were 24% higher than in the same period in 2012. The Board is confident of delivering trading performance in line with its expectations for 2013.

Activity levels across LSL have increased and the business is continuing to make significant investments in both Agency and Surveying to build capacity for further growth. With the recent launch of the Help to Buy Mortgage Guarantee Scheme, the outlook from lenders continues to be positive and as a result the Board is optimistic that market growth will continue throughout 2014.

The business is extremely cash generative and has a strong balance sheet with relatively low levels of financial gearing. LSL is very well placed to benefit from its operational gearing in the improved market conditions and to combine this with further selective value-accretive acquisitions to increase shareholder value.

(1)  Source: Bank of England

(2)  Excluding the impact of a major surveying contract insourced in 2012.

(3)  Source: CML

For further information, please contact:

Ian Crabb, Group Chief Executive Officer

Steve Cooke, Group Finance Director

LSL Property Services plc                                                                                 0207 382 0360

Richard Darby, Sophie McNulty and Helen Greenwood

Buchanan                                                                                                          0207 466 5000

Notes to Editors:

LSL Property Services plc is a leading provider of residential property services to its two key customer groups. Services to consumers include: residential sales, lettings, surveying 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 our website: www.lslps.co.uk.

 

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